“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a ten year period?
Today, let’s look backwards in time to 2013, and take a look at what happened to investors who asked that very question about Morgan Stanley (NYSE: MS), by taking a look at the investment outcome over a ten year holding period.
| Start date: | 04/19/2013 |
|
|||
| End date: | 04/18/2023 | ||||
| Start price/share: | $20.58 | ||||
| End price/share: | $89.85 | ||||
| Starting shares: | 485.91 | ||||
| Ending shares: | 605.78 | ||||
| Dividends reinvested/share: | $12.27 | ||||
| Total return: | 444.30% | ||||
| Average annual return: | 18.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $54,440.09 | ||||
The above analysis shows the ten year investment result worked out exceptionally well, with an annualized rate of return of 18.46%. This would have turned a $10K investment made 10 years ago into $54,440.09 today (as of 04/18/2023). On a total return basis, that’s a result of 444.30% (something to think about: how might MS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $12.27/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 3.1/share, we calculate that MS has a current yield of approximately 3.45%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.1 against the original $20.58/share purchase price. This works out to a yield on cost of 16.76%.
One more piece of investment wisdom to leave you with:
“The most important thing about an investment philosophy is that you have one.” — David Booth
