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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 CME Group (NASD: CME) 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: 07/01/2014


End date: 06/28/2019
Start price/share: $70.99
End price/share: $194.11
Starting shares: 140.86
Ending shares: 174.43
Dividends reinvested/share: $25.68
Total return: 238.58%
Average annual return: 27.66%
Starting investment: $10,000.00
Ending investment: $33,860.48

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 27.66%. This would have turned a $10K investment made 5 years ago into $33,860.48 today (as of 06/28/2019). On a total return basis, that’s a result of 238.58% (something to think about: how might CME shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that CME Group paid investors a total of $25.68/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 3/share, we calculate that CME has a current yield of approximately 1.55%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3 against the original $70.99/share purchase price. This works out to a yield on cost of 2.18%.

Another great investment quote to think about:
“In investing, what is comfortable is rarely profitable.” — Robert Arnott