Photo credit: commons.wikimedia.org

“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period for an investor who was considering Oracle Corp (NYSE: ORCL) back in 2017, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 01/31/2017
$10,000

01/31/2017
$21,756

01/28/2022
End date: 01/28/2022
Start price/share: $40.11
End price/share: $80.48
Starting shares: 249.31
Ending shares: 270.28
Dividends reinvested/share: $4.72
Total return: 117.52%
Average annual return: 16.84%
Starting investment: $10,000.00
Ending investment: $21,756.42

The above analysis shows the five year investment result worked out exceptionally well, with an annualized rate of return of 16.84%. This would have turned a $10K investment made 5 years ago into $21,756.42 today (as of 01/28/2022). On a total return basis, that’s a result of 117.52% (something to think about: how might ORCL shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Oracle Corp paid investors a total of $4.72/share in dividends over the 5 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 1.28/share, we calculate that ORCL has a current yield of approximately 1.59%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.28 against the original $40.11/share purchase price. This works out to a yield on cost of 3.96%.

Here’s one more great investment quote before you go:
“Though tempting, trying to time the market is a loser’s game.” — Christopher Davis