“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 MGM Resorts International (NYSE: MGM) 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: | 05/07/2012 |
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| End date: | 05/04/2022 | ||||
| Start price/share: | $12.16 | ||||
| End price/share: | $41.03 | ||||
| Starting shares: | 822.37 | ||||
| Ending shares: | 871.51 | ||||
| Dividends reinvested/share: | $1.61 | ||||
| Total return: | 257.58% | ||||
| Average annual return: | 13.59% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,747.80 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 13.59%. This would have turned a $10K investment made 10 years ago into $35,747.80 today (as of 05/04/2022). On a total return basis, that’s a result of 257.58% (something to think about: how might MGM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that MGM Resorts International paid investors a total of $1.61/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 .01/share, we calculate that MGM has a current yield of approximately 0.02%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .01 against the original $12.16/share purchase price. This works out to a yield on cost of 0.16%.
Here’s one more great investment quote before you go:
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently.” — Jack Bogle
