“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a ten year period?
Today, let’s look backwards in time to 2009, and take a look at what happened to investors who asked that very question about JPMorgan Chase & Co (NYSE: JPM), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 11/20/2009 |
|
|||
| End date: | 11/19/2019 | ||||
| Start price/share: | $42.46 | ||||
| End price/share: | $130.58 | ||||
| Starting shares: | 235.52 | ||||
| Ending shares: | 299.57 | ||||
| Dividends reinvested/share: | $16.41 | ||||
| Total return: | 291.17% | ||||
| Average annual return: | 14.61% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $39,118.97 | ||||
The above analysis shows the ten year investment result worked out quite well, with an annualized rate of return of 14.61%. This would have turned a $10K investment made 10 years ago into $39,118.97 today (as of 11/19/2019). On a total return basis, that’s a result of 291.17% (something to think about: how might JPM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that JPMorgan Chase & Co paid investors a total of $16.41/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 3.6/share, we calculate that JPM has a current yield of approximately 2.76%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.6 against the original $42.46/share purchase price. This works out to a yield on cost of 6.50%.
More investment wisdom to ponder:
“All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.” — Peter Lynch
