“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into PPG Industries Inc (NYSE: PPG) back in 2011: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full decade-long investment time horizon and then actually held for these past 10 years, here’s how that investment would have turned out.
| Start date: | 08/30/2011 |
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| End date: | 08/27/2021 | ||||
| Start price/share: | $38.24 | ||||
| End price/share: | $161.84 | ||||
| Starting shares: | 261.51 | ||||
| Ending shares: | 308.15 | ||||
| Dividends reinvested/share: | $16.26 | ||||
| Total return: | 398.71% | ||||
| Average annual return: | 17.43% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $49,864.40 | ||||
The above analysis shows the decade-long investment result worked out exceptionally well, with an annualized rate of return of 17.43%. This would have turned a $10K investment made 10 years ago into $49,864.40 today (as of 08/27/2021). On a total return basis, that’s a result of 398.71% (something to think about: how might PPG shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that PPG Industries Inc paid investors a total of $16.26/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 2.36/share, we calculate that PPG has a current yield of approximately 1.46%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.36 against the original $38.24/share purchase price. This works out to a yield on cost of 3.82%.
One more piece of investment wisdom to leave you with:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
