“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 twenty year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into American International Group Inc (NYSE: AIG)? Today, we examine the outcome of a twenty year investment into the stock back in 1999.
| Start date: | 09/07/1999 |
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| End date: | 09/05/2019 | ||||
| Start price/share: | $1,270.80 | ||||
| End price/share: | $54.68 | ||||
| Starting shares: | 7.87 | ||||
| Ending shares: | 11.25 | ||||
| Dividends reinvested/share: | $84.97 | ||||
| Total return: | -93.85% | ||||
| Average annual return: | -13.01% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $615.02 | ||||
As we can see, the twenty year investment result worked out poorly, with an annualized rate of return of -13.01%. This would have turned a $10K investment made 20 years ago into $615.02 today (as of 09/05/2019). On a total return basis, that’s a result of -93.85% (something to think about: how might AIG shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that American International Group Inc paid investors a total of $84.97/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 1.28/share, we calculate that AIG has a current yield of approximately 2.34%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.28 against the original $1270.80/share purchase price. This works out to a yield on cost of 0.18%.
One more investment quote to leave you with:
“Sometimes buying early on the way down looks like being wrong, but it isn’t.” — Seth Klarman
