Photo credit: commons.wikimedia.org

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— 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 Thermo Fisher Scientific Inc (NYSE: TMO) back in 2002: 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: 03/04/2002
$10,000

03/04/2002
$289,087

03/02/2022
End date: 03/02/2022
Start price/share: $20.11
End price/share: $556.45
Starting shares: 497.27
Ending shares: 519.21
Dividends reinvested/share: $6.90
Total return: 2,789.16%
Average annual return: 18.31%
Starting investment: $10,000.00
Ending investment: $289,087.47

As shown above, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 18.31%. This would have turned a $10K investment made 20 years ago into $289,087.47 today (as of 03/02/2022). On a total return basis, that’s a result of 2,789.16% (something to think about: how might TMO shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Thermo Fisher Scientific Inc paid investors a total of $6.90/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 1.2/share, we calculate that TMO has a current yield of approximately 0.22%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.2 against the original $20.11/share purchase price. This works out to a yield on cost of 1.09%.

Another great investment quote to think about:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman