“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 Archer Daniels Midland Co. (NYSE: ADM) back in 2011, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 06/06/2011 |
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| End date: | 06/03/2021 | ||||
| Start price/share: | $30.26 | ||||
| End price/share: | $68.25 | ||||
| Starting shares: | 330.47 | ||||
| Ending shares: | 434.61 | ||||
| Dividends reinvested/share: | $11.27 | ||||
| Total return: | 196.62% | ||||
| Average annual return: | 11.49% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $29,672.84 | ||||
As shown above, the ten year investment result worked out quite well, with an annualized rate of return of 11.49%. This would have turned a $10K investment made 10 years ago into $29,672.84 today (as of 06/03/2021). On a total return basis, that’s a result of 196.62% (something to think about: how might ADM shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and Archer Daniels Midland Co. has paid $11.27/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 1.48/share, we calculate that ADM has a current yield of approximately 2.17%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.48 against the original $30.26/share purchase price. This works out to a yield on cost of 7.17%.
More investment wisdom to ponder:
“The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.” — Bruce Kovner
