“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 ten year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Intercontinental Exchange Inc (NYSE: ICE) back in 2009: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full ten year investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 11/16/2009 |
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| End date: | 11/13/2019 | ||||
| Start price/share: | $22.01 | ||||
| End price/share: | $92.67 | ||||
| Starting shares: | 454.34 | ||||
| Ending shares: | 490.08 | ||||
| Dividends reinvested/share: | $4.50 | ||||
| Total return: | 354.16% | ||||
| Average annual return: | 16.34% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $45,405.71 | ||||
As shown above, the ten year investment result worked out exceptionally well, with an annualized rate of return of 16.34%. This would have turned a $10K investment made 10 years ago into $45,405.71 today (as of 11/13/2019). On a total return basis, that’s a result of 354.16% (something to think about: how might ICE shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Intercontinental Exchange Inc paid investors a total of $4.50/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 1.1/share, we calculate that ICE has a current yield of approximately 1.19%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.1 against the original $22.01/share purchase price. This works out to a yield on cost of 5.41%.
Here’s one more great investment quote before you go:
“Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.” — Peter Lynch
