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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 International Flavors & Fragrances Inc. (NYSE: IFF) 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: 06/25/2014
$10,000

06/25/2014
$15,570

06/24/2019
End date: 06/24/2019
Start price/share: $103.84
End price/share: $146.63
Starting shares: 96.30
Ending shares: 106.18
Dividends reinvested/share: $12.36
Total return: 55.69%
Average annual return: 9.26%
Starting investment: $10,000.00
Ending investment: $15,570.62

The above analysis shows the five year investment result worked out well, with an annualized rate of return of 9.26%. This would have turned a $10K investment made 5 years ago into $15,570.62 today (as of 06/24/2019). On a total return basis, that’s a result of 55.69% (something to think about: how might IFF shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that International Flavors & Fragrances Inc. paid investors a total of $12.36/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 2.92/share, we calculate that IFF has a current yield of approximately 1.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.92 against the original $103.84/share purchase price. This works out to a yield on cost of 1.92%.

One more piece of investment wisdom to leave you with:
“You make most of your money in a bear market, you just don’t realize it at the time.” — Shelby Davis