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“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

— Warren Buffett

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a decade-long holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Alaska Air Group, Inc. (NYSE: ALK) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.

Start date: 03/26/2009
$10,000

03/26/2009
$124,762

03/25/2019
End date: 03/25/2019
Start price/share: $4.67
End price/share: $53.60
Starting shares: 2,141.33
Ending shares: 2,328.31
Dividends reinvested/share: $5.43
Total return: 1,147.97%
Average annual return: 28.70%
Starting investment: $10,000.00
Ending investment: $124,762.96

As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 28.70%. This would have turned a $10K investment made 10 years ago into $124,762.96 today (as of 03/25/2019). On a total return basis, that’s a result of 1,147.97% (something to think about: how might ALK shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Alaska Air Group, Inc. paid investors a total of $5.43/share in dividends over the 10 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).

Based upon the most recent annualized dividend rate of 1.4/share, we calculate that ALK has a current yield of approximately 2.61%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $4.67/share purchase price. This works out to a yield on cost of 55.89%.

One more piece of investment wisdom to leave you with:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner