“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 two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Adobe Inc (NASD: ADBE) back in 1999: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 12/02/1999 |
|
|||
| End date: | 11/29/2019 | ||||
| Start price/share: | $17.16 | ||||
| End price/share: | $309.53 | ||||
| Starting shares: | 582.75 | ||||
| Ending shares: | 587.14 | ||||
| Dividends reinvested/share: | $0.14 | ||||
| Total return: | 1,717.37% | ||||
| Average annual return: | 15.60% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $181,761.40 | ||||
As shown above, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 15.60%. This would have turned a $10K investment made 20 years ago into $181,761.40 today (as of 11/29/2019). On a total return basis, that’s a result of 1,717.37% (something to think about: how might ADBE shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Adobe Inc paid investors a total of $0.14/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 .0125/share, we calculate that ADBE has a current yield of approximately 0.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .0125 against the original $17.16/share purchase price. This works out to a yield on cost of 0.00%.
One more investment quote to leave you with:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
