“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 two-decade holding period for an investor who was considering Travelers Companies Inc (NYSE: TRV) back in 2002, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 11/15/2002 |
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| End date: | 11/14/2022 | ||||
| Start price/share: | $35.05 | ||||
| End price/share: | $182.70 | ||||
| Starting shares: | 285.31 | ||||
| Ending shares: | 465.33 | ||||
| Dividends reinvested/share: | $40.16 | ||||
| Total return: | 750.15% | ||||
| Average annual return: | 11.29% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $85,041.70 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 11.29%. This would have turned a $10K investment made 20 years ago into $85,041.70 today (as of 11/14/2022). On a total return basis, that’s a result of 750.15% (something to think about: how might TRV shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Travelers Companies Inc paid investors a total of $40.16/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 3.72/share, we calculate that TRV has a current yield of approximately 2.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.72 against the original $35.05/share purchase price. This works out to a yield on cost of 5.82%.
Another great investment quote to think about:
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” — Warren Buffett
