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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 Morgan Stanley (NYSE: MS) 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: 12/17/2009
$10,000

12/17/2009
$20,366

12/16/2019
End date: 12/16/2019
Start price/share: $29.12
End price/share: $50.72
Starting shares: 343.41
Ending shares: 401.36
Dividends reinvested/share: $5.70
Total return: 103.57%
Average annual return: 7.37%
Starting investment: $10,000.00
Ending investment: $20,366.39

The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 7.37%. This would have turned a $10K investment made 10 years ago into $20,366.39 today (as of 12/16/2019). On a total return basis, that’s a result of 103.57% (something to think about: how might MS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Morgan Stanley paid investors a total of $5.70/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 1.4/share, we calculate that MS has a current yield of approximately 2.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $29.12/share purchase price. This works out to a yield on cost of 9.48%.

Another great investment quote to think about:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil