“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Verisign Inc (NASD: VRSN) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 07/02/1999 |
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| End date: | 07/01/2019 | ||||
| Start price/share: | $42.47 | ||||
| End price/share: | $211.29 | ||||
| Starting shares: | 235.46 | ||||
| Ending shares: | 276.51 | ||||
| Dividends reinvested/share: | $5.75 | ||||
| Total return: | 484.23% | ||||
| Average annual return: | 9.22% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $58,406.77 | ||||
The above analysis shows the twenty year investment result worked out well, with an annualized rate of return of 9.22%. This would have turned a $10K investment made 20 years ago into $58,406.77 today (as of 07/01/2019). On a total return basis, that’s a result of 484.23% (something to think about: how might VRSN shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Verisign Inc paid investors a total of $5.75/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 2.75/share, we calculate that VRSN has a current yield of approximately 0.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.75 against the original $42.47/share purchase price. This works out to a yield on cost of 0.00%.
More investment wisdom to ponder:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett
