“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Micron Technology Inc. (NASD: MU) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
|Average annual return:||8.03%|
As shown above, the two-decade investment result worked out well, with an annualized rate of return of 8.03%. This would have turned a $10K investment made 20 years ago into $46,889.04 today (as of 08/18/2023). On a total return basis, that’s a result of 368.71% (something to think about: how might MU shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Micron Technology Inc. paid investors a total of $0.88/share in dividends over the 20 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 .46/share, we calculate that MU has a current yield of approximately 0.72%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .46 against the original $13.76/share purchase price. This works out to a yield on cost of 5.23%.
Here’s one more great investment quote before you go:
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supplyâ€¦and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” — Peter Lynch