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“I buy on the assumption that they could close the market the next day and not reopen it for five 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 five year holding period for an investor who was considering General Mills Inc (NYSE: GIS) back in 2015, bought the stock, ignored the market’s ups and downs, and simply held through to today.

Start date: 06/24/2015
$10,000

06/24/2015
$12,898

06/23/2020
End date: 06/23/2020
Start price/share: $56.55
End price/share: $61.00
Starting shares: 176.83
Ending shares: 211.47
Dividends reinvested/share: $9.58
Total return: 28.99%
Average annual return: 5.22%
Starting investment: $10,000.00
Ending investment: $12,898.88

As we can see, the five year investment result worked out well, with an annualized rate of return of 5.22%. This would have turned a $10K investment made 5 years ago into $12,898.88 today (as of 06/23/2020). On a total return basis, that’s a result of 28.99% (something to think about: how might GIS shares perform over the next 5 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]

Notice that General Mills Inc paid investors a total of $9.58/share in dividends over the 5 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 1.96/share, we calculate that GIS has a current yield of approximately 3.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 1.96 against the original $56.55/share purchase price. This works out to a yield on cost of 5.68%.

One more piece of investment wisdom to leave you with:
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger