“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
This inspiring quote from Warren Buffett teaches us the importance of considering our investment time horizon when approaching any given investment: Could we envision ourselves holding the stock we are considering for many years? Even a twenty year holding period potentially?
For “buy-and-hold” investors taking a long-term view, what’s important isn’t the short-term stock market fluctuations that will inevitably occur, but what happens over the long haul. Looking back 20 years to 2001, investors considering an investment into shares of Marsh & McLennan Companies Inc. (NYSE: MMC) may have been pondering this very question and thinking about their potential investment result over a full twenty year time horizon. Here’s how that would have worked out.
| Start date: | 07/09/2001 |
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| End date: | 07/07/2021 | ||||
| Start price/share: | $49.88 | ||||
| End price/share: | $142.57 | ||||
| Starting shares: | 200.48 | ||||
| Ending shares: | 325.12 | ||||
| Dividends reinvested/share: | $22.14 | ||||
| Total return: | 363.52% | ||||
| Average annual return: | 7.97% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $46,380.53 | ||||
As shown above, the twenty year investment result worked out well, with an annualized rate of return of 7.97%. This would have turned a $10K investment made 20 years ago into $46,380.53 today (as of 07/07/2021). On a total return basis, that’s a result of 363.52% (something to think about: how might MMC shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Marsh & McLennan Companies Inc. paid investors a total of $22.14/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 1.86/share, we calculate that MMC has a current yield of approximately 1.30%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.86 against the original $49.88/share purchase price. This works out to a yield on cost of 2.61%.
One more piece of investment wisdom to leave you with:
“Wide diversification is only required when investors do not understand what they are doing.” — Warren Buffett
