“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Blackrock Inc (NYSE: BLK) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 10/14/1999 |
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| End date: | 10/11/2019 | ||||
| Start price/share: | $13.63 | ||||
| End price/share: | $434.00 | ||||
| Starting shares: | 733.68 | ||||
| Ending shares: | 1,053.24 | ||||
| Dividends reinvested/share: | $92.94 | ||||
| Total return: | 4,471.07% | ||||
| Average annual return: | 21.05% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $456,825.65 | ||||
As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 21.05%. This would have turned a $10K investment made 20 years ago into $456,825.65 today (as of 10/11/2019). On a total return basis, that’s a result of 4,471.07% (something to think about: how might BLK shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Blackrock Inc paid investors a total of $92.94/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).
More investment wisdom to ponder:
“Every day that you’re not selling an asset in your portfolio, you’re choosing to buy it.” — Sam Zell
