“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 Alexandria Real Estate Equities Inc (NYSE: ARE) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/13/1999 |
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| End date: | 05/10/2019 | ||||
| Start price/share: | $30.50 | ||||
| End price/share: | $142.73 | ||||
| Starting shares: | 327.87 | ||||
| Ending shares: | 674.60 | ||||
| Dividends reinvested/share: | $50.13 | ||||
| Total return: | 862.86% | ||||
| Average annual return: | 11.99% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $96,350.59 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 11.99%. This would have turned a $10K investment made 20 years ago into $96,350.59 today (as of 05/10/2019). On a total return basis, that’s a result of 862.86% (something to think about: how might ARE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Alexandria Real Estate Equities Inc paid investors a total of $50.13/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 3.88/share, we calculate that ARE has a current yield of approximately 2.72%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.88 against the original $30.50/share purchase price. This works out to a yield on cost of 8.92%.
One more investment quote to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
