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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

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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 Masco Corp. (NYSE: MAS) 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: 03/28/2014
$10,000

03/28/2014
$21,248

03/27/2019
End date: 03/27/2019
Start price/share: $19.37
End price/share: $38.58
Starting shares: 516.26
Ending shares: 550.67
Dividends reinvested/share: $1.91
Total return: 112.45%
Average annual return: 16.27%
Starting investment: $10,000.00
Ending investment: $21,248.99

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.27%. This would have turned a $10K investment made 5 years ago into $21,248.99 today (as of 03/27/2019). On a total return basis, that’s a result of 112.45% (something to think about: how might MAS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Masco Corp. paid investors a total of $1.91/share in dividends over the 5 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 .48/share, we calculate that MAS has a current yield of approximately 1.24%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .48 against the original $19.37/share purchase price. This works out to a yield on cost of 6.40%.

One more piece of investment wisdom to leave you with:
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” — George Soros

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