“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 two-decade holding period for an investor who was considering Costco Wholesale Corp (NASD: COST) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 02/16/2001 |
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| End date: | 02/12/2021 | ||||
| Start price/share: | $42.69 | ||||
| End price/share: | $352.75 | ||||
| Starting shares: | 234.26 | ||||
| Ending shares: | 332.50 | ||||
| Dividends reinvested/share: | $50.94 | ||||
| Total return: | 1,072.89% | ||||
| Average annual return: | 13.10% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $117,327.16 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 13.10%. This would have turned a $10K investment made 20 years ago into $117,327.16 today (as of 02/12/2021). On a total return basis, that’s a result of 1,072.89% (something to think about: how might COST shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Costco Wholesale Corp paid investors a total of $50.94/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 2.8/share, we calculate that COST has a current yield of approximately 0.79%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.8 against the original $42.69/share purchase price. This works out to a yield on cost of 1.85%.
One more investment quote to leave you with:
“A 10% decline in the market is fairly common, it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” — Christopher Davis
