“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
A critical pearl of wisdom from Warren Buffett teaches us that with any potential stock investment we may make, as soon as our buy order is filled we will have a choice: to remain a co-owner of that company for the long haul, or to react to the inevitable short-term ups and downs that the stock market is famous for (sometimes sharp ups and downs).
The reality of this choice forces us to challenge our confidence in any given company we might invest into, and keep our eyes on the long-term time horizon. The market may go up and down the interim, but over a decade-long holding period, will the investment succeed?
Back in 2014, investors may have been asking themselves that very question about eBay Inc. (NASD: EBAY). Let’s examine what would have happened over a decade-long holding period, had you invested in EBAY shares back in 2014 and held on.
| Start date: | 06/06/2014 |
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| End date: | 06/05/2024 | ||||
| Start price/share: | $20.92 | ||||
| End price/share: | $53.01 | ||||
| Starting shares: | 478.01 | ||||
| Ending shares: | 524.30 | ||||
| Dividends reinvested/share: | $4.34 | ||||
| Total return: | 177.93% | ||||
| Average annual return: | 10.76% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,801.78 | ||||
As shown above, the decade-long investment result worked out quite well, with an annualized rate of return of 10.76%. This would have turned a $10K investment made 10 years ago into $27,801.78 today (as of 06/05/2024). On a total return basis, that’s a result of 177.93% (something to think about: how might EBAY shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Dividends are always an important investment factor to consider, and eBay Inc. has paid $4.34/share in dividends to shareholders over the past 10 years we looked at above. Many an investor will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional shares of stock can be a great way for an investor to compound their returns. The above calculations are done with the assuption that dividends received over time are reinvested (the calcuations use the closing price on ex-date).
Based upon the most recent annualized dividend rate of 1.08/share, we calculate that EBAY has a current yield of approximately 2.04%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.08 against the original $20.92/share purchase price. This works out to a yield on cost of 9.75%.
More investment wisdom to ponder:
“If you’re looking for a home run, a great investment for five years or 10 years or more, then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.” — Ralph Wanger
