“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
The above quote from Warren Buffett is timeless, and brings into focus the choice about time horizon that any investor should think about before buying a stock they are considering. Behind every stock is an actual business; what will that business look like over a decade-long period?
Today, let’s look backwards in time to 2014, and take a look at what happened to investors who asked that very question about Apple Inc (NASD: AAPL), by taking a look at the investment outcome over a decade-long holding period.
| Start date: | 09/09/2014 |
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| End date: | 09/06/2024 | ||||
| Start price/share: | $24.50 | ||||
| End price/share: | $220.82 | ||||
| Starting shares: | 408.16 | ||||
| Ending shares: | 459.71 | ||||
| Dividends reinvested/share: | $7.54 | ||||
| Total return: | 915.13% | ||||
| Average annual return: | 26.08% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $101,499.06 | ||||
As we can see, the decade-long investment result worked out exceptionally well, with an annualized rate of return of 26.08%. This would have turned a $10K investment made 10 years ago into $101,499.06 today (as of 09/06/2024). On a total return basis, that’s a result of 915.13% (something to think about: how might AAPL shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Apple Inc paid investors a total of $7.54/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/share, we calculate that AAPL has a current yield of approximately 0.45%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1 against the original $24.50/share purchase price. This works out to a yield on cost of 1.84%.
More investment wisdom to ponder:
“You can’t be a good value investor without being an independent thinker; you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do.” — Joel Greenblatt
