“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 decade-long 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 Goldman Sachs Group Inc (NYSE: GS), by taking a look at the investment outcome over a decade-long holding period.
|Average annual return:||9.77%|
The above analysis shows the decade-long investment result worked out well, with an annualized rate of return of 9.77%. This would have turned a $10K investment made 10 years ago into $25,393.68 today (as of 08/31/2023). On a total return basis, that’s a result of 154.00% (something to think about: how might GS shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Goldman Sachs Group Inc paid investors a total of $46.40/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 11/share, we calculate that GS has a current yield of approximately 3.36%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 11 against the original $154.76/share purchase price. This works out to a yield on cost of 2.17%.
One more piece of investment wisdom to leave you with:
“Buy not on optimism, but on arithmetic.” — Benjamin Graham