“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Albemarle Corp. (NYSE: ALB) back in 2011: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 09/12/2011 |
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| End date: | 09/09/2021 | ||||
| Start price/share: | $44.69 | ||||
| End price/share: | $243.41 | ||||
| Starting shares: | 223.76 | ||||
| Ending shares: | 262.44 | ||||
| Dividends reinvested/share: | $11.99 | ||||
| Total return: | 538.81% | ||||
| Average annual return: | 20.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $63,906.26 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 20.38%. This would have turned a $10K investment made 10 years ago into $63,906.26 today (as of 09/09/2021). On a total return basis, that’s a result of 538.81% (something to think about: how might ALB shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Albemarle Corp. paid investors a total of $11.99/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 1.56/share, we calculate that ALB has a current yield of approximately 0.64%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.56 against the original $44.69/share purchase price. This works out to a yield on cost of 1.43%.
More investment wisdom to ponder:
“Markets can remain irrational longer than you can remain solvent.” — John Maynard Keynes
