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“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
$10,000

05/13/1999
$96,350

05/10/2019
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