“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year holding period for an investor who was considering ConocoPhillips (NYSE: COP) back in 2000, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 08/04/2000 |
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| End date: | 08/03/2020 | ||||
| Start price/share: | $20.13 | ||||
| End price/share: | $36.71 | ||||
| Starting shares: | 496.77 | ||||
| Ending shares: | 916.54 | ||||
| Dividends reinvested/share: | $29.10 | ||||
| Total return: | 236.46% | ||||
| Average annual return: | 6.25% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $33,640.88 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 6.25%. This would have turned a $10K investment made 20 years ago into $33,640.88 today (as of 08/03/2020). On a total return basis, that’s a result of 236.46% (something to think about: how might COP shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that ConocoPhillips paid investors a total of $29.10/share in dividends over the 20 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 COP has a current yield of approximately 4.58%. 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 $20.13/share purchase price. This works out to a yield on cost of 22.75%.
More investment wisdom to ponder:
“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
