“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period for an investor who was considering Apple Inc (NASD: AAPL) back in 2011, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 05/17/2011 |
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| End date: | 05/14/2021 | ||||
| Start price/share: | $12.01 | ||||
| End price/share: | $127.45 | ||||
| Starting shares: | 832.64 | ||||
| Ending shares: | 968.40 | ||||
| Dividends reinvested/share: | $5.45 | ||||
| Total return: | 1,134.23% | ||||
| Average annual return: | 28.57% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $123,423.10 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 28.57%. This would have turned a $10K investment made 10 years ago into $123,423.10 today (as of 05/14/2021). On a total return basis, that’s a result of 1,134.23% (something to think about: how might AAPL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Apple Inc paid investors a total of $5.45/share in dividends over the 10 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 .88/share, we calculate that AAPL has a current yield of approximately 0.69%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .88 against the original $12.01/share purchase price. This works out to a yield on cost of 5.75%.
Another great investment quote to think about:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
