“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 twenty year holding period for an investor who was considering Archer Daniels Midland Co. (NYSE: ADM) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 01/09/2004 |
|
|||
| End date: | 01/08/2024 | ||||
| Start price/share: | $14.98 | ||||
| End price/share: | $71.06 | ||||
| Starting shares: | 667.56 | ||||
| Ending shares: | 1,046.72 | ||||
| Dividends reinvested/share: | $18.91 | ||||
| Total return: | 643.80% | ||||
| Average annual return: | 10.55% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $74,413.60 | ||||
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 10.55%. This would have turned a $10K investment made 20 years ago into $74,413.60 today (as of 01/08/2024). On a total return basis, that’s a result of 643.80% (something to think about: how might ADM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Archer Daniels Midland Co. paid investors a total of $18.91/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 1.8/share, we calculate that ADM has a current yield of approximately 2.53%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.8 against the original $14.98/share purchase price. This works out to a yield on cost of 16.89%.
More investment wisdom to ponder:
“While it might seem that anyone can be a value investor, the essential characteristics of this type of investor-patience, discipline, and risk aversion-may well be genetically determined.” — Seth Klarman
