“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period for an investor who was considering CME Group (NASD: CME) back in 2015, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||16.97%|
As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 16.97%. This would have turned a $10K investment made 5 years ago into $21,905.79 today (as of 06/11/2020). On a total return basis, that’s a result of 119.05% (something to think about: how might CME shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that CME Group paid investors a total of $27.44/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 3.4/share, we calculate that CME has a current yield of approximately 1.95%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.4 against the original $96.93/share purchase price. This works out to a yield on cost of 2.01%.
Here’s one more great investment quote before you go:
“The whole secret to winning big in the stock market is not to be right all the time, but to lose the least amount possible when you’re wrong.” — William O’Neil