“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Apple Inc (NASD: AAPL) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 06/07/1999 |
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| End date: | 06/05/2019 | ||||
| Start price/share: | $1.75 | ||||
| End price/share: | $182.54 | ||||
| Starting shares: | 5,714.29 | ||||
| Ending shares: | 6,523.67 | ||||
| Dividends reinvested/share: | $15.33 | ||||
| Total return: | 11,808.31% | ||||
| Average annual return: | 26.98% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $1,190,033.19 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 26.98%. This would have turned a $10K investment made 20 years ago into $1,190,033.19 today (as of 06/05/2019). On a total return basis, that’s a result of 11,808.31% (something to think about: how might AAPL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Apple Inc paid investors a total of $15.33/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 3.08/share, we calculate that AAPL has a current yield of approximately 1.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.08 against the original $1.75/share purchase price. This works out to a yield on cost of 96.57%.
Another great investment quote to think about:
“If I’ve learned one thing in this life it’s this: even if you lose, don’t lose the lesson.” — Daymond John
