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“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
$10,000

07/22/1999
$181,761

07/19/2019
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