“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into FMC Corp. (NYSE: FMC) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 10/16/2009 |
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| End date: | 10/15/2019 | ||||
| Start price/share: | $24.11 | ||||
| End price/share: | $83.04 | ||||
| Starting shares: | 414.77 | ||||
| Ending shares: | 461.00 | ||||
| Dividends reinvested/share: | $5.56 | ||||
| Total return: | 282.81% | ||||
| Average annual return: | 14.36% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $38,273.76 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 14.36%. This would have turned a $10K investment made 10 years ago into $38,273.76 today (as of 10/15/2019). On a total return basis, that’s a result of 282.81% (something to think about: how might FMC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that FMC Corp. paid investors a total of $5.56/share in dividends over the 10 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 1.6/share, we calculate that FMC has a current yield of approximately 1.93%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.6 against the original $24.11/share purchase price. This works out to a yield on cost of 8.00%.
One more investment quote to leave you with:
“I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.” — Peter Lynch
