“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Ball Corp (NYSE: BLL) back in 1999. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 06/21/1999 |
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| End date: | 06/18/2019 | ||||
| Start price/share: | $3.00 | ||||
| End price/share: | $66.45 | ||||
| Starting shares: | 3,333.33 | ||||
| Ending shares: | 4,033.98 | ||||
| Dividends reinvested/share: | $3.26 | ||||
| Total return: | 2,580.58% | ||||
| Average annual return: | 17.87% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $268,198.86 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 17.87%. This would have turned a $10K investment made 20 years ago into $268,198.86 today (as of 06/18/2019). On a total return basis, that’s a result of 2,580.58% (something to think about: how might BLL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Ball Corp paid investors a total of $3.26/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 .6/share, we calculate that BLL has a current yield of approximately 0.90%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .6 against the original $3.00/share purchase price. This works out to a yield on cost of 30.00%.
Another great investment quote to think about:
“A risk-reward ratio is important, but so is an aggravation-satisfaction ratio.” — Muriel Siebert
