“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into Gilead Sciences Inc (NASD: GILD) back in 2001: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 06/11/2001 |
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| End date: | 06/08/2021 | ||||
| Start price/share: | $3.11 | ||||
| End price/share: | $67.51 | ||||
| Starting shares: | 3,215.43 | ||||
| Ending shares: | 3,866.81 | ||||
| Dividends reinvested/share: | $13.44 | ||||
| Total return: | 2,510.48% | ||||
| Average annual return: | 17.71% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $261,008.84 | ||||
The above analysis shows the twenty year investment result worked out exceptionally well, with an annualized rate of return of 17.71%. This would have turned a $10K investment made 20 years ago into $261,008.84 today (as of 06/08/2021). On a total return basis, that’s a result of 2,510.48% (something to think about: how might GILD shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Gilead Sciences Inc paid investors a total of $13.44/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 2.84/share, we calculate that GILD has a current yield of approximately 4.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.84 against the original $3.11/share purchase price. This works out to a yield on cost of 135.37%.
One more piece of investment wisdom to leave you with:
“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” — Dave Ramsey
