“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Cisco Systems Inc (NASD: CSCO) back in 2005: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 04/25/2005 |
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| End date: | 04/22/2025 | ||||
| Start price/share: | $17.48 | ||||
| End price/share: | $55.04 | ||||
| Starting shares: | 572.08 | ||||
| Ending shares: | 868.78 | ||||
| Dividends reinvested/share: | $15.89 | ||||
| Total return: | 378.18% | ||||
| Average annual return: | 8.14% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $47,853.48 | ||||
As we can see, the two-decade investment result worked out well, with an annualized rate of return of 8.14%. This would have turned a $10K investment made 20 years ago into $47,853.48 today (as of 04/22/2025). On a total return basis, that’s a result of 378.18% (something to think about: how might CSCO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cisco Systems Inc paid investors a total of $15.89/share in dividends over the 20 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 1.64/share, we calculate that CSCO has a current yield of approximately 2.98%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.64 against the original $17.48/share purchase price. This works out to a yield on cost of 17.05%.
One more investment quote to leave you with:
“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” — Warren Buffett
