“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 Extra Space Storage Inc (NYSE: EXR) back in 2012. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 02/16/2012 |
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| End date: | 02/15/2022 | ||||
| Start price/share: | $26.87 | ||||
| End price/share: | $192.18 | ||||
| Starting shares: | 372.16 | ||||
| Ending shares: | 519.77 | ||||
| Dividends reinvested/share: | $27.42 | ||||
| Total return: | 898.90% | ||||
| Average annual return: | 25.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $99,867.60 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 25.86%. This would have turned a $10K investment made 10 years ago into $99,867.60 today (as of 02/15/2022). On a total return basis, that’s a result of 898.90% (something to think about: how might EXR shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Extra Space Storage Inc paid investors a total of $27.42/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 5/share, we calculate that EXR has a current yield of approximately 2.60%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $26.87/share purchase price. This works out to a yield on cost of 9.68%.
One more investment quote to leave you with:
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
