“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 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 ten year holding period for an investor who was considering T. Rowe Price Group Inc (NASD: TROW) back in 2013, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 01/22/2013 |
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| End date: | 01/19/2023 | ||||
| Start price/share: | $71.93 | ||||
| End price/share: | $114.00 | ||||
| Starting shares: | 139.02 | ||||
| Ending shares: | 190.05 | ||||
| Dividends reinvested/share: | $33.36 | ||||
| Total return: | 116.66% | ||||
| Average annual return: | 8.04% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $21,664.75 | ||||
As shown above, the ten year investment result worked out well, with an annualized rate of return of 8.04%. This would have turned a $10K investment made 10 years ago into $21,664.75 today (as of 01/19/2023). On a total return basis, that’s a result of 116.66% (something to think about: how might TROW shares perform over the next 10 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that T. Rowe Price Group Inc paid investors a total of $33.36/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 4.8/share, we calculate that TROW has a current yield of approximately 4.21%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 4.8 against the original $71.93/share purchase price. This works out to a yield on cost of 5.85%.
Another great investment quote to think about:
“Smart investing doesn’t consist of buying good assets but of buying assets well. This is a very, very important distinction that very, very few people understand.” — Howard Marks
