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“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

— 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 eBay Inc. (NASD: EBAY) 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: 10/22/2001


End date: 10/20/2021
Start price/share: $5.59
End price/share: $75.97
Starting shares: 1,788.91
Ending shares: 1,857.61
Dividends reinvested/share: $1.74
Total return: 1,311.23%
Average annual return: 14.14%
Starting investment: $10,000.00
Ending investment: $141,003.36

As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 14.14%. This would have turned a $10K investment made 20 years ago into $141,003.36 today (as of 10/20/2021). On a total return basis, that’s a result of 1,311.23% (something to think about: how might EBAY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that eBay Inc. paid investors a total of $1.74/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 .72/share, we calculate that EBAY has a current yield of approximately 0.95%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .72 against the original $5.59/share purchase price. This works out to a yield on cost of 16.99%.

One more piece of investment wisdom to leave you with:
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” — Peter Lynch