“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 Lam Research Corp (NASD: LRCX) back in 2001, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 07/02/2001 |
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| End date: | 07/01/2021 | ||||
| Start price/share: | $29.34 | ||||
| End price/share: | $633.07 | ||||
| Starting shares: | 340.83 | ||||
| Ending shares: | 381.01 | ||||
| Dividends reinvested/share: | $20.62 | ||||
| Total return: | 2,312.05% | ||||
| Average annual return: | 17.24% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $241,142.18 | ||||
As we can see, the twenty year investment result worked out exceptionally well, with an annualized rate of return of 17.24%. This would have turned a $10K investment made 20 years ago into $241,142.18 today (as of 07/01/2021). On a total return basis, that’s a result of 2,312.05% (something to think about: how might LRCX shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Lam Research Corp paid investors a total of $20.62/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 5.2/share, we calculate that LRCX has a current yield of approximately 0.82%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 5.2 against the original $29.34/share purchase price. This works out to a yield on cost of 2.79%.
More investment wisdom to ponder:
“A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.” — Benjamin Graham
