“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— 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 decade-long holding period for an investor who was considering eBay Inc. (NASD: EBAY) back in 2014, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 08/12/2014 |
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| End date: | 08/09/2024 | ||||
| Start price/share: | $22.49 | ||||
| End price/share: | $56.52 | ||||
| Starting shares: | 444.64 | ||||
| Ending shares: | 487.70 | ||||
| Dividends reinvested/share: | $4.34 | ||||
| Total return: | 175.65% | ||||
| Average annual return: | 10.67% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $27,561.26 | ||||
As we can see, the decade-long investment result worked out quite well, with an annualized rate of return of 10.67%. This would have turned a $10K investment made 10 years ago into $27,561.26 today (as of 08/09/2024). On a total return basis, that’s a result of 175.65% (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.]
Notice that eBay Inc. paid investors a total of $4.34/share in dividends over the 10 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 1.08/share, we calculate that EBAY has a current yield of approximately 1.91%. 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 $22.49/share purchase price. This works out to a yield on cost of 8.49%.
Another great investment quote to think about:
“When I was young I thought that money was the most important thing in life; now that I am old I know that it is.” — Oscar Wilde
