“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 useful question to ask is whether we would still be comfortable making the investment if we could not sell it for many years.
A long-term, buy-and-hold approach often calls for a time horizon that spans a decade or more. Suppose such a buy-and-hold investor had considered buying shares of American Express Co. (NYSE: AXP) back in 2016 and then simply held on through market volatility, the COVID-19 shock, multiple Federal Reserve tightening cycles and a significant economic recovery. The numbers below illustrate how such an investment would have worked out for that buy-and-hold investor over the ten-year period.
| Start date: | 04/13/2016 |
|
|||
| End date: | 04/10/2026 | ||||
| Start price/share: | $62.16 | ||||
| End price/share: | $313.50 | ||||
| Starting shares: | 160.88 | ||||
| Ending shares: | 184.97 | ||||
| Dividends reinvested/share: | $20.34 | ||||
| Total return: | 479.88% | ||||
| Average annual return: | 19.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $57,980.51 | ||||
As shown above, the ten-year investment result worked out exceptionally well, with an annualized rate of return of 19.22%. That would have turned a $10,000 investment made 10 years ago into $57,980.51 as of 04/10/2026. On a total return basis, that is a gain of 479.88% — a powerful illustration of what a sustained compounding effect can do over a full market cycle.
Over this period, American Express navigated a challenging operating environment that included the end of its long-standing co-brand partnership with Costco in 2016, the onset of the COVID-19 pandemic in 2020, and subsequent shifts in consumer spending from goods back toward services and travel. The company has leaned on its premium brand positioning, a closed-loop payments network and a focus on higher-spending, creditworthy customers to drive revenue growth and support earnings, factors that underpinned the share price appreciation reflected in the 10-year holding period.
Notice that American Express Co. paid investors a total of $20.34/share in dividends over the 10-year holding period, marking a second component of the total return beyond share price change alone. Reinvesting those dividends increased the share count from 160.88 to 184.97, so a meaningful portion of the ending portfolio value came from shares acquired via the dividend reinvestment plan (DRIP). Much like watering a tree, reinvesting dividends can help an investment grow over time — for the above calculations, dividend reinvestment is assumed, with the closing price on the ex-dividend date used for the reinvestment of each payment.
Based upon the most recent annualized dividend rate of $3.80/share, we calculate that AXP has a current yield of approximately 1.21%, which is modest relative to higher-yielding sectors such as utilities or real estate investment trusts. However, American Express has complemented that cash yield with consistent dividend growth and sizable share repurchase programs over time, effectively returning capital through multiple avenues.
Another interesting data point to examine is “yield on cost” — in other words, expressing the current annualized dividend of $3.80 against the original $62.16/share purchase price. This works out to a yield on cost of about 6.1%, meaning that an investor who bought in 2016 is now earning a cash yield on the original capital outlay that is considerably higher than the stock’s current market yield. Yield on cost is not a valuation tool, but it does provide a useful perspective on how a rising dividend stream can enhance the economics of a long-term holding.
Looking ahead, the investment case for American Express will continue to depend on factors such as billed business growth, net interest income trends, credit quality, regulatory developments and competitive dynamics within payments and lending. The past decade illustrates that a durable competitive position, disciplined risk management and consistent capital returns can reward patient shareholders, but future returns will ultimately be determined by the company’s ability to sustain earnings growth from here.
More investment wisdom to ponder:
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply…and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.” — Peter Lynch
For investors who favor a long-term, fundamentals-driven approach, the AXP experience over the past decade underscores the importance of time in the market rather than market timing, the incremental contribution of reinvested dividends, and the potential benefits of aligning with established, competitively advantaged franchises.
