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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

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 Emerson Electric Co. (NYSE: EMR) 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: 11/16/2009
$10,000

11/16/2009
$23,344

11/13/2019
End date: 11/13/2019
Start price/share: $42.40
End price/share: $73.58
Starting shares: 235.85
Ending shares: 317.14
Dividends reinvested/share: $16.94
Total return: 133.36%
Average annual return: 8.85%
Starting investment: $10,000.00
Ending investment: $23,344.44

The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 8.85%. This would have turned a $10K investment made 10 years ago into $23,344.44 today (as of 11/13/2019). On a total return basis, that’s a result of 133.36% (something to think about: how might EMR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Emerson Electric Co. paid investors a total of $16.94/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 2/share, we calculate that EMR has a current yield of approximately 2.72%. 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 $42.40/share purchase price. This works out to a yield on cost of 6.42%.

One more investment quote to leave you with:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner