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“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
$10,000

07/02/1999
$58,406

07/01/2019
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