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“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 Ross Stores Inc (NASD: ROST) back in 2018, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 05/24/2018
$10,000

05/24/2018
  $12,884

05/23/2023
End date: 05/23/2023
Start price/share: $82.96
End price/share: $101.88
Starting shares: 120.54
Ending shares: 126.47
Dividends reinvested/share: $4.69
Total return: 28.85%
Average annual return: 5.20%
Starting investment: $10,000.00
Ending investment: $12,884.83

The above analysis shows the five year investment result worked out well, with an annualized rate of return of 5.20%. This would have turned a $10K investment made 5 years ago into $12,884.83 today (as of 05/23/2023). On a total return basis, that’s a result of 28.85% (something to think about: how might ROST shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that Ross Stores Inc paid investors a total of $4.69/share in dividends over the 5 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 1.34/share, we calculate that ROST has a current yield of approximately 1.31%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.34 against the original $82.96/share purchase price. This works out to a yield on cost of 1.58%.

One more piece of investment wisdom to leave you with:
“I made my money by selling too soon.” — Bernard Baruch