“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2010, and take a look at what happened to investors who asked that very question about Morgan Stanley (NYSE: MS), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 06/09/2010 |
|
|||
| End date: | 06/08/2020 | ||||
| Start price/share: | $25.13 | ||||
| End price/share: | $50.15 | ||||
| Starting shares: | 397.93 | ||||
| Ending shares: | 470.51 | ||||
| Dividends reinvested/share: | $6.30 | ||||
| Total return: | 135.96% | ||||
| Average annual return: | 8.96% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $23,598.00 | ||||
As we can see, the decade-long investment result worked out well, with an annualized rate of return of 8.96%. This would have turned a $10K investment made 10 years ago into $23,598.00 today (as of 06/08/2020). On a total return basis, that’s a result of 135.96% (something to think about: how might MS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $6.30/share in dividends over the 10 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 1.4/share, we calculate that MS has a current yield of approximately 2.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.4 against the original $25.13/share purchase price. This works out to a yield on cost of 11.10%.
Another great investment quote to think about:
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.” — Benjamin Graham
