“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
Investors can learn a lot from Warren Buffett, whose above quote teaches the importance of thinking about investment time horizon, and asking ourselves before buying any given stock: can we envision holding onto it for years — even a two-decade holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into NVIDIA Corp (NASD: NVDA) back in 2003: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full two-decade investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 12/22/2003 |
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| End date: | 12/20/2023 | ||||
| Start price/share: | $1.76 | ||||
| End price/share: | $481.11 | ||||
| Starting shares: | 5,681.82 | ||||
| Ending shares: | 6,193.20 | ||||
| Dividends reinvested/share: | $1.50 | ||||
| Total return: | 29,696.09% | ||||
| Average annual return: | 32.94% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $2,979,407.02 | ||||
The above analysis shows the two-decade investment result worked out exceptionally well, with an annualized rate of return of 32.94%. This would have turned a $10K investment made 20 years ago into $2,979,407.02 today (as of 12/20/2023). On a total return basis, that’s a result of 29,696.09% (something to think about: how might NVDA shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that NVIDIA Corp paid investors a total of $1.50/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 .16/share, we calculate that NVDA has a current yield of approximately 0.03%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .16 against the original $1.76/share purchase price. This works out to a yield on cost of 1.70%.
One more investment quote to leave you with:
“The best stock to buy is the one you already own.” — Peter Lynch
