“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 ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Alphabet Inc (NASD: GOOGL) 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: | 10/05/2015 |
|
|||
| End date: | 10/02/2025 | ||||
| Start price/share: | $33.58 | ||||
| End price/share: | $245.69 | ||||
| Starting shares: | 297.80 | ||||
| Ending shares: | 299.86 | ||||
| Dividends reinvested/share: | $1.22 | ||||
| Total return: | 636.74% | ||||
| Average annual return: | 22.10% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $73,647.27 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 22.10%. This would have turned a $10K investment made 10 years ago into $73,647.27 today (as of 10/02/2025). On a total return basis, that’s a result of 636.74% (something to think about: how might GOOGL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Alphabet Inc paid investors a total of $1.22/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 .84/share, we calculate that GOOGL has a current yield of approximately 0.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .84 against the original $33.58/share purchase price. This works out to a yield on cost of 1.01%.
One more piece of investment wisdom to leave you with:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
