“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
The Warren Buffett investment philosophy calls for a long-term investment horizon, where a two-decade holding period, or even longer, would fit right into the strategy. How would such a strategy have worked out for an investment into NOV Inc (NYSE: NOV)? Today, we examine the outcome of a two-decade investment into the stock back in 2001.
| Start date: | 02/05/2001 |
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| End date: | 02/04/2021 | ||||
| Start price/share: | $16.44 | ||||
| End price/share: | $13.78 | ||||
| Starting shares: | 608.27 | ||||
| Ending shares: | 719.80 | ||||
| Dividends reinvested/share: | $7.74 | ||||
| Total return: | -0.81% | ||||
| Average annual return: | -0.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $9,920.26 | ||||
The above analysis shows the two-decade investment result worked out poorly, with an annualized rate of return of -0.04%. This would have turned a $10K investment made 20 years ago into $9,920.26 today (as of 02/04/2021). On a total return basis, that’s a result of -0.81% (something to think about: how might NOV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NOV Inc paid investors a total of $7.74/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/share, we calculate that NOV has a current yield of approximately 0.00%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .2 against the original $16.44/share purchase price. This works out to a yield on cost of 0.00%.
Another great investment quote to think about:
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” — Peter Lynch
