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“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

— 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 two-decade holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of T. Rowe Price Group Inc (NASD: TROW) back in 2004. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:

Start date: 03/08/2004


End date: 03/06/2024
Start price/share: $27.60
End price/share: $117.00
Starting shares: 362.32
Ending shares: 620.76
Dividends reinvested/share: $47.03
Total return: 626.29%
Average annual return: 10.42%
Starting investment: $10,000.00
Ending investment: $72,662.22

As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 10.42%. This would have turned a $10K investment made 20 years ago into $72,662.22 today (as of 03/06/2024). On a total return basis, that’s a result of 626.29% (something to think about: how might TROW shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that T. Rowe Price Group Inc paid investors a total of $47.03/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 4.96/share, we calculate that TROW has a current yield of approximately 4.24%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.96 against the original $27.60/share purchase price. This works out to a yield on cost of 15.36%.

One more investment quote to leave you with:
“Value investing is at its core the marriage of a contrarian streak and a calculator.” — Seth Klarman