“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 Bank of America Corp (NYSE: BAC) back in 2017, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||7.17%|
As shown above, the five year investment result worked out well, with an annualized rate of return of 7.17%. This would have turned a $10K investment made 5 years ago into $14,137.29 today (as of 10/24/2022). On a total return basis, that’s a result of 41.36% (something to think about: how might BAC shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Beyond share price change, another component of BAC’s total return these past 5 years has been the payment by Bank of America Corp of $3.46/share in dividends to shareholders. Automatic reinvestment of dividends can be a wonderful way to compound returns, and for the above calculations we presume that dividends are reinvested into additional shares of stock. (For the purpose of these calcuations, the closing price on ex-date is used).
Based upon the most recent annualized dividend rate of .88/share, we calculate that BAC has a current yield of approximately 2.51%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .88 against the original $27.63/share purchase price. This works out to a yield on cost of 9.08%.
One more investment quote to leave you with:
“Experience taught me a few things. One is to listen to your gut, no matter how good something sounds on paper. The second is that you’re generally better off sticking with what you know. And the third is that sometimes your best investments are the ones you don’t make.” — Donald Trump