“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a five year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 5 years to 2019, investors considering an investment into shares of Lam Research Corp (NASD: LRCX) may have been pondering this very question and thinking about their potential investment result over a full five year time horizon. Here’s how that would have worked out.
| Start date: | 07/23/2019 |
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| End date: | 07/22/2024 | ||||
| Start price/share: | $209.76 | ||||
| End price/share: | $977.06 | ||||
| Starting shares: | 47.67 | ||||
| Ending shares: | 50.80 | ||||
| Dividends reinvested/share: | $30.70 | ||||
| Total return: | 396.32% | ||||
| Average annual return: | 37.75% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,640.84 | ||||
The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 37.75%. This would have turned a $10K investment made 5 years ago into $49,640.84 today (as of 07/22/2024). On a total return basis, that’s a result of 396.32% (something to think about: how might LRCX shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lam Research Corp paid investors a total of $30.70/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 8/share, we calculate that LRCX has a current yield of approximately 0.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 8 against the original $209.76/share purchase price. This works out to a yield on cost of 0.39%.
More investment wisdom to ponder:
“When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” — Oscar Wilde
