Photo credit: commons.wikimedia.org

“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 twenty year holding period for an investor who was considering Oracle Corp (NYSE: ORCL) back in 2003, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 01/21/2003
$10,000

01/21/2003
  $89,560

01/19/2023
End date: 01/19/2023
Start price/share: $11.57
End price/share: $85.94
Starting shares: 864.30
Ending shares: 1,042.23
Dividends reinvested/share: $9.04
Total return: 795.69%
Average annual return: 11.58%
Starting investment: $10,000.00
Ending investment: $89,560.86

As shown above, the twenty year investment result worked out quite well, with an annualized rate of return of 11.58%. This would have turned a $10K investment made 20 years ago into $89,560.86 today (as of 01/19/2023). On a total return basis, that’s a result of 795.69% (something to think about: how might ORCL shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Oracle Corp paid investors a total of $9.04/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 1.28/share, we calculate that ORCL has a current yield of approximately 1.49%. 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 $11.57/share purchase price. This works out to a yield on cost of 12.88%.

One more piece of investment wisdom to leave you with:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross