“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a two-decade period?
Today, let’s look backwards in time to 1999, and take a look at what happened to investors who asked that very question about Public Storage (NYSE: PSA), by taking a look at the investment outcome over a two-decade holding period.
| Start date: | 09/20/1999 |
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| End date: | 09/17/2019 | ||||
| Start price/share: | $25.88 | ||||
| End price/share: | $250.83 | ||||
| Starting shares: | 386.47 | ||||
| Ending shares: | 828.31 | ||||
| Dividends reinvested/share: | $77.96 | ||||
| Total return: | 1,977.65% | ||||
| Average annual return: | 16.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $207,935.21 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 16.38%. This would have turned a $10K investment made 20 years ago into $207,935.21 today (as of 09/17/2019). On a total return basis, that’s a result of 1,977.65% (something to think about: how might PSA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Public Storage paid investors a total of $77.96/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 8/share, we calculate that PSA has a current yield of approximately 3.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 8 against the original $25.88/share purchase price. This works out to a yield on cost of 12.33%.
One more investment quote to leave you with:
“Sentimentality about an investments leads to lack of discipline.” — Sam Zell
