“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a twenty year holding period for an investor who was considering Loews Corp. (NYSE: L) back in 1999, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 11/15/1999 |
|
|||
| End date: | 11/13/2019 | ||||
| Start price/share: | $10.91 | ||||
| End price/share: | $50.36 | ||||
| Starting shares: | 916.59 | ||||
| Ending shares: | 1,070.20 | ||||
| Dividends reinvested/share: | $4.61 | ||||
| Total return: | 438.95% | ||||
| Average annual return: | 8.78% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $53,861.88 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 8.78%. This would have turned a $10K investment made 20 years ago into $53,861.88 today (as of 11/13/2019). On a total return basis, that’s a result of 438.95% (something to think about: how might L shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Loews Corp. paid investors a total of $4.61/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 .25/share, we calculate that L has a current yield of approximately 0.50%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .25 against the original $10.91/share purchase price. This works out to a yield on cost of 4.58%.
Another great investment quote to think about:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett
