“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 twenty year holding period possibly?
Suppose a “buy-and-hold” investor was considering an investment into JPMorgan Chase & Co (NYSE: JPM) back in 2004: back then, such an investor may have been pondering this very same question. Had they answered “yes” to a full twenty year investment time horizon and then actually held for these past 20 years, here’s how that investment would have turned out.
| Start date: | 07/26/2004 |
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| End date: | 07/25/2024 | ||||
| Start price/share: | $36.47 | ||||
| End price/share: | $208.67 | ||||
| Starting shares: | 274.20 | ||||
| Ending shares: | 470.60 | ||||
| Dividends reinvested/share: | $41.66 | ||||
| Total return: | 882.01% | ||||
| Average annual return: | 12.09% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $98,147.80 | ||||
As we can see, the twenty year investment result worked out quite well, with an annualized rate of return of 12.09%. This would have turned a $10K investment made 20 years ago into $98,147.80 today (as of 07/25/2024). On a total return basis, that’s a result of 882.01% (something to think about: how might JPM shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that JPMorgan Chase & Co paid investors a total of $41.66/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 4.6/share, we calculate that JPM has a current yield of approximately 2.20%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.6 against the original $36.47/share purchase price. This works out to a yield on cost of 6.03%.
One more investment quote to leave you with:
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.” — Peter Lynch
