“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
A key lesson we can learn from Warren Buffett, is about how to think about a potential stock investment in the context of a long-term time horizon. Every investor in a stock has a choice: bite our fingernails over the short-term ups and downs that are inevitable with the stock market, or, zero in on stocks we are comfortable to simply buy and hold for the long haul — maybe even a decade-long holding period. Heck, investors can even choose to completely ignore the stock market’s short-run quotations and instead go into their initial investment planning to hold on for years and years regardless of the fluctuations in price that might occur next.
Today, we examine what would have happened over a decade-long holding period, had you decided back in 2010 to buy shares of eBay Inc. (NASD: EBAY) and simply hold through to today.
|Average annual return:||20.75%|
As shown above, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 20.75%. This would have turned a $10K investment made 10 years ago into $65,965.99 today (as of 07/28/2020). On a total return basis, that’s a result of 559.82% (something to think about: how might EBAY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of EBAY’s total return these past 10 years has been the payment by eBay Inc. of $0.88/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .64/share, we calculate that EBAY has a current yield of approximately 1.14%. 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 $8.74/share purchase price. This works out to a yield on cost of 13.04%.
Another great investment quote to think about:
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” — Warren Buffett