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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

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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Cisco Systems Inc (NASD: CSCO) back in 2011. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 04/28/2011


End date: 04/27/2021
Start price/share: $17.29
End price/share: $51.37
Starting shares: 578.37
Ending shares: 775.73
Dividends reinvested/share: $9.63
Total return: 298.49%
Average annual return: 14.82%
Starting investment: $10,000.00
Ending investment: $39,856.97

As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 14.82%. This would have turned a $10K investment made 10 years ago into $39,856.97 today (as of 04/27/2021). On a total return basis, that’s a result of 298.49% (something to think about: how might CSCO shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Cisco Systems Inc paid investors a total of $9.63/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 1.48/share, we calculate that CSCO has a current yield of approximately 2.88%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.48 against the original $17.29/share purchase price. This works out to a yield on cost of 16.66%.

One more investment quote to leave you with:
“I make no attempt to forecast the market; my efforts are devoted to finding undervalued securities.” — Warren Buffett