“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Abbott Laboratories (NYSE: ABT) back in 2005. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 08/15/2005 |
|
|||
| End date: | 08/12/2025 | ||||
| Start price/share: | $22.42 | ||||
| End price/share: | $131.02 | ||||
| Starting shares: | 446.03 | ||||
| Ending shares: | 702.75 | ||||
| Dividends reinvested/share: | $23.29 | ||||
| Total return: | 820.74% | ||||
| Average annual return: | 11.74% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $92,137.73 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 11.74%. This would have turned a $10K investment made 20 years ago into $92,137.73 today (as of 08/12/2025). On a total return basis, that’s a result of 820.74% (something to think about: how might ABT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Abbott Laboratories paid investors a total of $23.29/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 2.36/share, we calculate that ABT has a current yield of approximately 1.80%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.36 against the original $22.42/share purchase price. This works out to a yield on cost of 8.03%.
Here’s one more great investment quote before you go:
“In the end, how your investments behave is much less important than how you behave.” — Benjamin Graham
