“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 Travelers Companies Inc (NYSE: TRV) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/29/2001 |
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| End date: | 05/27/2021 | ||||
| Start price/share: | $49.84 | ||||
| End price/share: | $159.35 | ||||
| Starting shares: | 200.64 | ||||
| Ending shares: | 330.24 | ||||
| Dividends reinvested/share: | $36.49 | ||||
| Total return: | 426.24% | ||||
| Average annual return: | 8.65% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $52,588.50 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 8.65%. This would have turned a $10K investment made 20 years ago into $52,588.50 today (as of 05/27/2021). On a total return basis, that’s a result of 426.24% (something to think about: how might TRV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Travelers Companies Inc paid investors a total of $36.49/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 3.52/share, we calculate that TRV has a current yield of approximately 2.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.52 against the original $49.84/share purchase price. This works out to a yield on cost of 4.43%.
Here’s one more great investment quote before you go:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
