“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 Equinix Inc (NASD: EQIX) back in 2010: 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: | 01/11/2010 |
|
|||
| End date: | 01/08/2020 | ||||
| Start price/share: | $107.65 | ||||
| End price/share: | $583.80 | ||||
| Starting shares: | 92.89 | ||||
| Ending shares: | 111.77 | ||||
| Dividends reinvested/share: | $59.24 | ||||
| Total return: | 552.50% | ||||
| Average annual return: | 20.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $65,266.45 | ||||
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 20.64%. This would have turned a $10K investment made 10 years ago into $65,266.45 today (as of 01/08/2020). On a total return basis, that’s a result of 552.50% (something to think about: how might EQIX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Equinix Inc paid investors a total of $59.24/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 9.84/share, we calculate that EQIX has a current yield of approximately 1.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 9.84 against the original $107.65/share purchase price. This works out to a yield on cost of 1.57%.
More investment wisdom to ponder:
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
