“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a ten year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Berkley Corp (NYSE: WRB) back in 2013. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
| Start date: | 08/29/2013 |
|
|||
| End date: | 08/28/2023 | ||||
| Start price/share: | $18.37 | ||||
| End price/share: | $61.28 | ||||
| Starting shares: | 544.37 | ||||
| Ending shares: | 665.52 | ||||
| Dividends reinvested/share: | $7.59 | ||||
| Total return: | 307.83% | ||||
| Average annual return: | 15.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $40,789.01 | ||||
As we can see, the ten year investment result worked out exceptionally well, with an annualized rate of return of 15.09%. This would have turned a $10K investment made 10 years ago into $40,789.01 today (as of 08/28/2023). On a total return basis, that’s a result of 307.83% (something to think about: how might WRB shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Berkley Corp paid investors a total of $7.59/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 .44/share, we calculate that WRB has a current yield of approximately 0.72%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .44 against the original $18.37/share purchase price. This works out to a yield on cost of 3.92%.
Here’s one more great investment quote before you go:
“Successful investing is anticipating the anticipations of others.” — John Maynard Keynes
