“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period for an investor who was considering Texas Instruments Inc. (NASD: TXN) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 08/26/2010 |
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| End date: | 08/25/2020 | ||||
| Start price/share: | $23.83 | ||||
| End price/share: | $141.66 | ||||
| Starting shares: | 419.64 | ||||
| Ending shares: | 540.98 | ||||
| Dividends reinvested/share: | $17.42 | ||||
| Total return: | 666.35% | ||||
| Average annual return: | 22.57% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $76,617.18 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 22.57%. This would have turned a $10K investment made 10 years ago into $76,617.18 today (as of 08/25/2020). On a total return basis, that’s a result of 666.35% (something to think about: how might TXN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Texas Instruments Inc. paid investors a total of $17.42/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 3.6/share, we calculate that TXN has a current yield of approximately 2.54%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $23.83/share purchase price. This works out to a yield on cost of 10.66%.
One more investment quote to leave you with:
“In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.” — Ray Dalio
