“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 two-decade 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 JPMorgan Chase & Co (NYSE: JPM) may have been pondering this very question and thinking about their potential investment result over a full two-decade time horizon. Here’s how that would have worked out.
| Start date: | 12/28/2001 |
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| End date: | 12/27/2021 | ||||
| Start price/share: | $36.55 | ||||
| End price/share: | $158.16 | ||||
| Starting shares: | 273.60 | ||||
| Ending shares: | 489.93 | ||||
| Dividends reinvested/share: | $34.00 | ||||
| Total return: | 674.87% | ||||
| Average annual return: | 10.77% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $77,433.69 | ||||
The above analysis shows the two-decade investment result worked out quite well, with an annualized rate of return of 10.77%. This would have turned a $10K investment made 20 years ago into $77,433.69 today (as of 12/27/2021). On a total return basis, that’s a result of 674.87% (something to think about: how might JPM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that JPMorgan Chase & Co paid investors a total of $34.00/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 4/share, we calculate that JPM has a current yield of approximately 2.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4 against the original $36.55/share purchase price. This works out to a yield on cost of 6.92%.
Here’s one more great investment quote before you go:
“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett
