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“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 eBay Inc. (NASD: EBAY) back in 2016, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 01/26/2016


End date: 01/25/2021
Start price/share: $26.65
End price/share: $57.25
Starting shares: 375.23
Ending shares: 386.35
Dividends reinvested/share: $1.20
Total return: 121.19%
Average annual return: 17.20%
Starting investment: $10,000.00
Ending investment: $22,122.13

As shown above, the five year investment result worked out exceptionally well, with an annualized rate of return of 17.20%. This would have turned a $10K investment made 5 years ago into $22,122.13 today (as of 01/25/2021). On a total return basis, that’s a result of 121.19% (something to think about: how might EBAY shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that eBay Inc. paid investors a total of $1.20/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 .64/share, we calculate that EBAY has a current yield of approximately 1.12%. 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 $26.65/share purchase price. This works out to a yield on cost of 4.20%.

One more piece of investment wisdom to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch