“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period for an investor who was considering T. Rowe Price Group Inc (NASD: TROW) back in 2013, bought the stock, ignored the market’s ups and downs, and simply held through to today.
|Average annual return:||8.04%|
As shown above, the ten year investment result worked out well, with an annualized rate of return of 8.04%. This would have turned a $10K investment made 10 years ago into $21,664.75 today (as of 01/19/2023). On a total return basis, that’s a result of 116.66% (something to think about: how might TROW shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that T. Rowe Price Group Inc paid investors a total of $33.36/share in dividends over the 10 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 4.8/share, we calculate that TROW has a current yield of approximately 4.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.8 against the original $71.93/share purchase price. This works out to a yield on cost of 5.85%.
Another great investment quote to think about:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks