“I buy on the assumption that they could close the market the next day and not reopen it for five years.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a five year holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into International Business Machines Corp (NYSE: IBM)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 03/23/2015 |
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| End date: | 03/20/2020 | ||||
| Start price/share: | $164.63 | ||||
| End price/share: | $95.39 | ||||
| Starting shares: | 60.74 | ||||
| Ending shares: | 74.37 | ||||
| Dividends reinvested/share: | $29.56 | ||||
| Total return: | -29.06% | ||||
| Average annual return: | -6.64% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $7,093.91 | ||||
As shown above, the five year investment result worked out poorly, with an annualized rate of return of -6.64%. This would have turned a $10K investment made 5 years ago into $7,093.91 today (as of 03/20/2020). On a total return basis, that’s a result of -29.06% (something to think about: how might IBM shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that International Business Machines Corp paid investors a total of $29.56/share in dividends over the 5 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 6.48/share, we calculate that IBM has a current yield of approximately 6.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 6.48 against the original $164.63/share purchase price. This works out to a yield on cost of 4.12%.
One more piece of investment wisdom to leave you with:
“Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.” — Charlie Munger
