“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 decade-long holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Texas Instruments Inc. (NASD: TXN) back in 2015. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 03/20/2015 |
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| End date: | 03/19/2025 | ||||
| Start price/share: | $59.28 | ||||
| End price/share: | $181.74 | ||||
| Starting shares: | 168.69 | ||||
| Ending shares: | 221.04 | ||||
| Dividends reinvested/share: | $34.92 | ||||
| Total return: | 301.72% | ||||
| Average annual return: | 14.91% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $40,170.66 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 14.91%. This would have turned a $10K investment made 10 years ago into $40,170.66 today (as of 03/19/2025). On a total return basis, that’s a result of 301.72% (something to think about: how might TXN shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Texas Instruments Inc. paid investors a total of $34.92/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 5.44/share, we calculate that TXN has a current yield of approximately 2.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.44 against the original $59.28/share purchase price. This works out to a yield on cost of 5.04%.
More investment wisdom to ponder:
“Every once in a while, the market does something so stupid it takes your breath away.” — Jim Cramer
