“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 Goldman Sachs Group Inc (the (NYSE: GS)? Today, we examine the outcome of a five year investment into the stock back in 2015.
| Start date: | 05/27/2015 |
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| End date: | 05/26/2020 | ||||
| Start price/share: | $209.06 | ||||
| End price/share: | $196.06 | ||||
| Starting shares: | 47.83 | ||||
| Ending shares: | 51.72 | ||||
| Dividends reinvested/share: | $16.00 | ||||
| Total return: | 1.40% | ||||
| Average annual return: | 0.28% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $10,140.86 | ||||
As shown above, the five year investment result worked out as follows, with an annualized rate of return of 0.28%. This would have turned a $10K investment made 5 years ago into $10,140.86 today (as of 05/26/2020). On a total return basis, that’s a result of 1.40% (something to think about: how might GS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Goldman Sachs Group Inc (the paid investors a total of $16.00/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 5/share, we calculate that GS has a current yield of approximately 2.55%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5 against the original $209.06/share purchase price. This works out to a yield on cost of 1.22%.
Another great investment quote to think about:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
