“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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Abbott Laboratories (NYSE: ABT) back in 2014: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 05/16/2014 |
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| End date: | 05/15/2024 | ||||
| Start price/share: | $39.06 | ||||
| End price/share: | $104.59 | ||||
| Starting shares: | 256.02 | ||||
| Ending shares: | 309.92 | ||||
| Dividends reinvested/share: | $14.16 | ||||
| Total return: | 224.14% | ||||
| Average annual return: | 12.47% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $32,407.58 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 12.47%. This would have turned a $10K investment made 10 years ago into $32,407.58 today (as of 05/15/2024). On a total return basis, that’s a result of 224.14% (something to think about: how might ABT shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Abbott Laboratories paid investors a total of $14.16/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 2.2/share, we calculate that ABT has a current yield of approximately 2.10%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.2 against the original $39.06/share purchase price. This works out to a yield on cost of 5.38%.
One more investment quote to leave you with:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil
