“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 Mid-America Apartment Communities Inc (NYSE: MAA) back in 2014. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 02/05/2014 |
|
|||
| End date: | 02/02/2024 | ||||
| Start price/share: | $64.76 | ||||
| End price/share: | $128.00 | ||||
| Starting shares: | 154.42 | ||||
| Ending shares: | 218.22 | ||||
| Dividends reinvested/share: | $39.41 | ||||
| Total return: | 179.32% | ||||
| Average annual return: | 10.82% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,929.25 | ||||
As we can see, the ten year investment result worked out quite well, with an annualized rate of return of 10.82%. This would have turned a $10K investment made 10 years ago into $27,929.25 today (as of 02/02/2024). On a total return basis, that’s a result of 179.32% (something to think about: how might MAA shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Mid-America Apartment Communities Inc paid investors a total of $39.41/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 5.88/share, we calculate that MAA has a current yield of approximately 4.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.88 against the original $64.76/share purchase price. This works out to a yield on cost of 7.09%.
One more piece of investment wisdom to leave you with:
“When you sell in desperation, you always sell cheap.” — Peter Lynch
