“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— 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 Berkley Corp (NYSE: WRB) back in 2004: 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: | 04/23/2004 |
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| End date: | 04/22/2024 | ||||
| Start price/share: | $8.23 | ||||
| End price/share: | $83.43 | ||||
| Starting shares: | 1,215.07 | ||||
| Ending shares: | 1,672.17 | ||||
| Dividends reinvested/share: | $10.33 | ||||
| Total return: | 1,295.09% | ||||
| Average annual return: | 14.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $139,578.07 | ||||
As shown above, the two-decade investment result worked out quite well, with an annualized rate of return of 14.08%. This would have turned a $10K investment made 20 years ago into $139,578.07 today (as of 04/22/2024). On a total return basis, that’s a result of 1,295.09% (something to think about: how might WRB shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Berkley Corp paid investors a total of $10.33/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 .44/share, we calculate that WRB has a current yield of approximately 0.53%. 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 $8.23/share purchase price. This works out to a yield on cost of 6.44%.
More investment wisdom to ponder:
“I rarely think the market is right. I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it.” — Mark Cuban
