“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into Morgan Stanley (NYSE: MS)? Today, we examine the outcome of a two-decade investment into the stock back in 1999.
| Start date: | 09/27/1999 |
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| End date: | 09/25/2019 | ||||
| Start price/share: | $44.25 | ||||
| End price/share: | $43.04 | ||||
| Starting shares: | 225.99 | ||||
| Ending shares: | 380.95 | ||||
| Dividends reinvested/share: | $29.04 | ||||
| Total return: | 63.96% | ||||
| Average annual return: | 2.50% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $16,389.49 | ||||
The above analysis shows the two-decade investment result worked out as follows, with an annualized rate of return of 2.50%. This would have turned a $10K investment made 20 years ago into $16,389.49 today (as of 09/25/2019). On a total return basis, that’s a result of 63.96% (something to think about: how might MS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $29.04/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 1.4/share, we calculate that MS has a current yield of approximately 3.25%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $44.25/share purchase price. This works out to a yield on cost of 7.34%.
One more investment quote to leave you with:
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.” — Charlie Munger
