“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 Thermo Fisher Scientific Inc (NYSE: TMO) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 07/22/1999 |
|
|||
| End date: | 07/19/2019 | ||||
| Start price/share: | $18.44 | ||||
| End price/share: | $289.82 | ||||
| Starting shares: | 542.37 | ||||
| Ending shares: | 627.20 | ||||
| Dividends reinvested/share: | $7.12 | ||||
| Total return: | 1,717.74% | ||||
| Average annual return: | 15.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $181,761.40 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 15.60%. This would have turned a $10K investment made 20 years ago into $181,761.40 today (as of 07/19/2019). On a total return basis, that’s a result of 1,717.74% (something to think about: how might TMO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Thermo Fisher Scientific Inc paid investors a total of $7.12/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 .76/share, we calculate that TMO has a current yield of approximately 0.26%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .76 against the original $18.44/share purchase price. This works out to a yield on cost of 1.41%.
One more piece of investment wisdom to leave you with:
“Sometimes buying early on the way down looks like being wrong, but it isn’t.” — Seth Klarman
