“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 twenty year holding period for an investor who was considering eBay Inc. (NASD: EBAY) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 10/08/2004 |
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| End date: | 10/07/2024 | ||||
| Start price/share: | $19.49 | ||||
| End price/share: | $66.77 | ||||
| Starting shares: | 513.08 | ||||
| Ending shares: | 565.34 | ||||
| Dividends reinvested/share: | $4.61 | ||||
| Total return: | 277.47% | ||||
| Average annual return: | 6.86% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $37,724.13 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 6.86%. This would have turned a $10K investment made 20 years ago into $37,724.13 today (as of 10/07/2024). On a total return basis, that’s a result of 277.47% (something to think about: how might EBAY shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that eBay Inc. paid investors a total of $4.61/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 1.08/share, we calculate that EBAY has a current yield of approximately 1.62%. 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 $19.49/share purchase price. This works out to a yield on cost of 8.31%.
One more piece of investment wisdom to leave you with:
“Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” — Seth Klarman
