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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

Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a ten year holding period possibly?

Suppose a “buy-and-hold” investor was considering an investment into Lam Research Corp (NASD: LRCX) back in 2012: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.

Start date: 12/17/2012


End date: 12/14/2022
Start price/share: $36.28
End price/share: $468.24
Starting shares: 275.63
Ending shares: 313.96
Dividends reinvested/share: $30.07
Total return: 1,370.10%
Average annual return: 30.85%
Starting investment: $10,000.00
Ending investment: $147,033.85

As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 30.85%. This would have turned a $10K investment made 10 years ago into $147,033.85 today (as of 12/14/2022). On a total return basis, that’s a result of 1,370.10% (something to think about: how might LRCX shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Lam Research Corp paid investors a total of $30.07/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 6.9/share, we calculate that LRCX has a current yield of approximately 1.47%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.9 against the original $36.28/share purchase price. This works out to a yield on cost of 4.05%.

One more piece of investment wisdom to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen