“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Netflix Inc (NASD: NFLX) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 12/26/2014 |
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| End date: | 12/24/2024 | ||||
| Start price/share: | $48.58 | ||||
| End price/share: | $932.12 | ||||
| Starting shares: | 205.85 | ||||
| Ending shares: | 205.85 | ||||
| Dividends reinvested/share: | $0.00 | ||||
| Total return: | 1,818.73% | ||||
| Average annual return: | 34.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $191,889.57 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 34.36%. This would have turned a $10K investment made 10 years ago into $191,889.57 today (as of 12/24/2024). On a total return basis, that’s a result of 1,818.73% (something to think about: how might NFLX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
More investment wisdom to ponder:
“You can’t restate a dividend.” — Malon Wilkus
