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“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of FLIR Systems, Inc. (NASD: FLIR) back in 2016. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 04/11/2016
$10,000

04/11/2016
$19,164

04/08/2021
End date: 04/08/2021
Start price/share: $32.39
End price/share: $57.71
Starting shares: 308.74
Ending shares: 332.09
Dividends reinvested/share: $3.13
Total return: 91.65%
Average annual return: 13.91%
Starting investment: $10,000.00
Ending investment: $19,164.58

As shown above, the five year investment result worked out quite well, with an annualized rate of return of 13.91%. This would have turned a $10K investment made 5 years ago into $19,164.58 today (as of 04/08/2021). On a total return basis, that’s a result of 91.65% (something to think about: how might FLIR shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that FLIR Systems, Inc. paid investors a total of $3.13/share in dividends over the 5 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 .68/share, we calculate that FLIR has a current yield of approximately 1.18%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .68 against the original $32.39/share purchase price. This works out to a yield on cost of 3.64%.

One more piece of investment wisdom to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger