“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
Such a great quote from Warren Buffett, highlighting the importance of investment time horizon when considering making an investment. In the short run, who knows what the stock market will do? A week or two after buying any given stock, could the entire stock market fall out of bed? Quite possibly! Should that happen, how would you react? It is an excellent question to think about before hitting the buy button.
For investors who take a multi-year time horizon, the important thing is not what happens in the next week or two, but what the result will be over the long haul. Today, we look at the result investors of the year 2010 experienced, who considered an investment in shares of Microsoft Corporation (NASD: MSFT) and decided upon a decade-long investment time horizon.
|Average annual return:||25.80%|
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 25.80%. This would have turned a $10K investment made 10 years ago into $99,267.35 today (as of 12/17/2020). On a total return basis, that’s a result of 892.37% (something to think about: how might MSFT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of MSFT’s total return these past 10 years has been the payment by Microsoft Corporation of $13.68/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of 2.24/share, we calculate that MSFT has a current yield of approximately 1.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.24 against the original $27.81/share purchase price. This works out to a yield on cost of 3.67%.
Here’s one more great investment quote before you go:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger