“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 NVIDIA Corp (NASD: NVDA) 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: | $3.26 | ||||
| End price/share: | $216.74 | ||||
| Starting shares: | 3,067.48 | ||||
| Ending shares: | 3,330.57 | ||||
| Dividends reinvested/share: | $3.43 | ||||
| Total return: | 7,118.69% | ||||
| Average annual return: | 23.85% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $721,820.54 | ||||
As we can see, the two-decade investment result worked out exceptionally well, with an annualized rate of return of 23.85%. This would have turned a $10K investment made 20 years ago into $721,820.54 today (as of 11/29/2019). On a total return basis, that’s a result of 7,118.69% (something to think about: how might NVDA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NVIDIA Corp paid investors a total of $3.43/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 .64/share, we calculate that NVDA has a current yield of approximately 0.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .64 against the original $3.26/share purchase price. This works out to a yield on cost of 9.20%.
One more investment quote to leave you with:
“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.” — Bernard Baruch
