Photo credit:

“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Chevron Corporation (NYSE: CVX) back in 2019. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/19/2019


End date: 03/18/2024
Start price/share: $125.28
End price/share: $155.41
Starting shares: 79.82
Ending shares: 99.56
Dividends reinvested/share: $27.39
Total return: 54.72%
Average annual return: 9.12%
Starting investment: $10,000.00
Ending investment: $15,474.82

As we can see, the five year investment result worked out well, with an annualized rate of return of 9.12%. This would have turned a $10K investment made 5 years ago into $15,474.82 today (as of 03/18/2024). On a total return basis, that’s a result of 54.72% (something to think about: how might CVX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Chevron Corporation paid investors a total of $27.39/share in dividends over the 5 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 6.52/share, we calculate that CVX has a current yield of approximately 4.20%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.52 against the original $125.28/share purchase price. This works out to a yield on cost of 3.35%.

Another great investment quote to think about:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman