“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 Gilead Sciences Inc (NASD: GILD) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 08/16/1999 |
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| End date: | 08/14/2019 | ||||
| Start price/share: | $2.54 | ||||
| End price/share: | $63.12 | ||||
| Starting shares: | 3,937.01 | ||||
| Ending shares: | 4,410.74 | ||||
| Dividends reinvested/share: | $8.75 | ||||
| Total return: | 2,684.06% | ||||
| Average annual return: | 18.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $278,519.74 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 18.09%. This would have turned a $10K investment made 20 years ago into $278,519.74 today (as of 08/14/2019). On a total return basis, that’s a result of 2,684.06% (something to think about: how might GILD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Gilead Sciences Inc paid investors a total of $8.75/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 2.52/share, we calculate that GILD has a current yield of approximately 3.99%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.52 against the original $2.54/share purchase price. This works out to a yield on cost of 157.09%.
Another great investment quote to think about:
“Those who do not remember the past are condemned to repeat it.” — George Santayana
