“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Activision Blizzard, Inc. (NASD: ATVI) back in 2009. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 10/28/2009 |
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| End date: | 10/25/2019 | ||||
| Start price/share: | $11.39 | ||||
| End price/share: | $55.26 | ||||
| Starting shares: | 877.96 | ||||
| Ending shares: | 973.25 | ||||
| Dividends reinvested/share: | $2.39 | ||||
| Total return: | 437.82% | ||||
| Average annual return: | 18.33% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,795.80 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 18.33%. This would have turned a $10K investment made 10 years ago into $53,795.80 today (as of 10/25/2019). On a total return basis, that’s a result of 437.82% (something to think about: how might ATVI shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Activision Blizzard, Inc. paid investors a total of $2.39/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 .37/share, we calculate that ATVI has a current yield of approximately 0.67%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .37 against the original $11.39/share purchase price. This works out to a yield on cost of 5.88%.
Another great investment quote to think about:
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros
