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“I buy on the assumption that they could close the market the next day and not reopen it for five years.”

— Warren Buffett

The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?

A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Carmax Inc. (NYSE: KMX) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 02/18/2015
$10,000

02/18/2015
$14,636

02/14/2020
End date: 02/14/2020
Start price/share: $67.51
End price/share: $98.81
Starting shares: 148.13
Ending shares: 148.13
Dividends reinvested/share: $0.00
Total return: 46.36%
Average annual return: 7.93%
Starting investment: $10,000.00
Ending investment: $14,636.54

As shown above, the five year investment result worked out well, with an annualized rate of return of 7.93%. This would have turned a $10K investment made 5 years ago into $14,636.54 today (as of 02/14/2020). On a total return basis, that’s a result of 46.36% (something to think about: how might KMX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

One more investment quote to leave you with:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham