“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).
The reality of this choice forces us to challenge our confidence in any given company we might invest into, and keep our eyes on the long-term time horizon. The market may go up and down the interim, but over a decade-long holding period, will the investment succeed?
Back in 2010, investors may have been asking themselves that very question about Lilly (Eli) & Co (NYSE: LLY). Let’s examine what would have happened over a decade-long holding period, had you invested in LLY shares back in 2010 and held on.
| Start date: | 12/15/2010 |
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| End date: | 12/14/2020 | ||||
| Start price/share: | $35.13 | ||||
| End price/share: | $157.91 | ||||
| Starting shares: | 284.66 | ||||
| Ending shares: | 389.78 | ||||
| Dividends reinvested/share: | $21.75 | ||||
| Total return: | 515.50% | ||||
| Average annual return: | 19.92% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $61,567.07 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 19.92%. This would have turned a $10K investment made 10 years ago into $61,567.07 today (as of 12/14/2020). On a total return basis, that’s a result of 515.50% (something to think about: how might LLY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Always an important consideration with a dividend-paying company is: should we reinvest our dividends?Over the past 10 years, Lilly (Eli) & Co has paid $21.75/share in dividends. For the above analysis, we assume that the investor reinvests dividends into new shares of stock (for the above calculations, the reinvestment is performed using closing price on ex-div date for that dividend).
Based upon the most recent annualized dividend rate of 2.96/share, we calculate that LLY has a current yield of approximately 1.87%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.96 against the original $35.13/share purchase price. This works out to a yield on cost of 5.32%.
One more piece of investment wisdom to leave you with:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner
