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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

One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a five year holding period for an investor who was considering Best Buy Inc (NYSE: BBY) back in 2014, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 11/20/2014
$10,000

11/20/2014
$23,317

11/19/2019
End date: 11/19/2019
Start price/share: $38.02
End price/share: $75.36
Starting shares: 263.02
Ending shares: 309.36
Dividends reinvested/share: $7.85
Total return: 133.13%
Average annual return: 18.45%
Starting investment: $10,000.00
Ending investment: $23,317.14

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 18.45%. This would have turned a $10K investment made 5 years ago into $23,317.14 today (as of 11/19/2019). On a total return basis, that’s a result of 133.13% (something to think about: how might BBY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Best Buy Inc paid investors a total of $7.85/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/share, we calculate that BBY has a current yield of approximately 2.65%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2 against the original $38.02/share purchase price. This works out to a yield on cost of 6.97%.

One more investment quote to leave you with:
“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” — Warren Buffett