“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
One of the most important things investors can learn from Warren Buffett, is about how they approach their time horizon for an investment into a stock under consideration. Because immediately after buying shares of a given stock, investors will then be able to check on the day-to-day (and even minute-by-minute) market value. Some days the stock market will be up, other days down. These daily fluctuations can often distract from the long-term view. Today, we look at the result of a decade-long holding period for an investor who was considering AmerisourceBergen Corp. (NYSE: ABC) back in 2010, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/04/2010 |
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| End date: | 06/03/2020 | ||||
| Start price/share: | $30.77 | ||||
| End price/share: | $99.49 | ||||
| Starting shares: | 324.99 | ||||
| Ending shares: | 379.01 | ||||
| Dividends reinvested/share: | $11.15 | ||||
| Total return: | 277.08% | ||||
| Average annual return: | 14.19% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $37,722.16 | ||||
The above analysis shows the decade-long investment result worked out quite well, with an annualized rate of return of 14.19%. This would have turned a $10K investment made 10 years ago into $37,722.16 today (as of 06/03/2020). On a total return basis, that’s a result of 277.08% (something to think about: how might ABC shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that AmerisourceBergen Corp. paid investors a total of $11.15/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 1.68/share, we calculate that ABC has a current yield of approximately 1.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.68 against the original $30.77/share purchase price. This works out to a yield on cost of 5.49%.
Here’s one more great investment quote before you go:
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” — Seth Klarman
