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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 Travelers Companies Inc (NYSE: TRV) 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: 08/31/2009
$10,000

08/31/2009
$37,235

08/29/2019
End date: 08/29/2019
Start price/share: $50.42
End price/share: $146.94
Starting shares: 198.33
Ending shares: 253.47
Dividends reinvested/share: $21.98
Total return: 272.45%
Average annual return: 14.05%
Starting investment: $10,000.00
Ending investment: $37,235.13

As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 14.05%. This would have turned a $10K investment made 10 years ago into $37,235.13 today (as of 08/29/2019). On a total return basis, that’s a result of 272.45% (something to think about: how might TRV shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Travelers Companies Inc paid investors a total of $21.98/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 3.28/share, we calculate that TRV has a current yield of approximately 2.23%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.28 against the original $50.42/share purchase price. This works out to a yield on cost of 4.42%.

One more investment quote to leave you with:
“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” — Benjamin Graham