“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 NVIDIA Corp (NASD: NVDA) back in 2000: 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: | 04/24/2000 |
|
|||
| End date: | 04/23/2020 | ||||
| Start price/share: | $6.39 | ||||
| End price/share: | $284.01 | ||||
| Starting shares: | 1,564.95 | ||||
| Ending shares: | 1,700.24 | ||||
| Dividends reinvested/share: | $3.59 | ||||
| Total return: | 4,728.86% | ||||
| Average annual return: | 21.38% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $482,908.47 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 21.38%. This would have turned a $10K investment made 20 years ago into $482,908.47 today (as of 04/23/2020). On a total return basis, that’s a result of 4,728.86% (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 $3.59/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 0.23%. 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 $6.39/share purchase price. This works out to a yield on cost of 3.60%.
One more investment quote to leave you with:
“Never test the depth of a river with both feet.” — Warren Buffett
