“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— 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 two-decade holding period for an investor who was considering Morgan Stanley (NYSE: MS) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 09/20/2004 |
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| End date: | 09/17/2024 | ||||
| Start price/share: | $50.96 | ||||
| End price/share: | $99.84 | ||||
| Starting shares: | 196.23 | ||||
| Ending shares: | 357.22 | ||||
| Dividends reinvested/share: | $37.28 | ||||
| Total return: | 256.65% | ||||
| Average annual return: | 6.56% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $35,648.02 | ||||
The above analysis shows the two-decade investment result worked out well, with an annualized rate of return of 6.56%. This would have turned a $10K investment made 20 years ago into $35,648.02 today (as of 09/17/2024). On a total return basis, that’s a result of 256.65% (something to think about: how might MS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $37.28/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 3.7/share, we calculate that MS has a current yield of approximately 3.71%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.7 against the original $50.96/share purchase price. This works out to a yield on cost of 7.28%.
More investment wisdom to ponder:
“Finding the best person or the best organization to invest your money is one of the most important financial decisions you’ll ever make.” — Bill Gross
