“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into General Electric Co (NYSE: GE) back in 2020: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full five year investment time horizon and then actually held for these past 5 years, here’s how that investment would have turned out.
| Start date: | 02/13/2020 |
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| End date: | 02/12/2025 | ||||
| Start price/share: | $64.49 | ||||
| End price/share: | $209.64 | ||||
| Starting shares: | 155.06 | ||||
| Ending shares: | 158.57 | ||||
| Dividends reinvested/share: | $1.97 | ||||
| Total return: | 232.42% | ||||
| Average annual return: | 27.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,242.73 | ||||
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 27.14%. This would have turned a $10K investment made 5 years ago into $33,242.73 today (as of 02/12/2025). On a total return basis, that’s a result of 232.42% (something to think about: how might GE shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that General Electric Co paid investors a total of $1.97/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 1.12/share, we calculate that GE has a current yield of approximately 0.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.12 against the original $64.49/share purchase price. This works out to a yield on cost of 0.82%.
One more piece of investment wisdom to leave you with:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
