“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Cognizant Technology Solutions Corp. (NASD: CTSH) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/17/1999 |
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| End date: | 05/16/2019 | ||||
| Start price/share: | $0.59 | ||||
| End price/share: | $58.64 | ||||
| Starting shares: | 16,949.15 | ||||
| Ending shares: | 17,289.70 | ||||
| Dividends reinvested/share: | $1.45 | ||||
| Total return: | 10,038.68% | ||||
| Average annual return: | 25.96% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $1,013,331.35 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 25.96%. This would have turned a $10K investment made 20 years ago into $1,013,331.35 today (as of 05/16/2019). On a total return basis, that’s a result of 10,038.68% (something to think about: how might CTSH shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Cognizant Technology Solutions Corp. paid investors a total of $1.45/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 .8/share, we calculate that CTSH has a current yield of approximately 1.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .8 against the original $0.59/share purchase price. This works out to a yield on cost of 230.51%.
More investment wisdom to ponder:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett
