“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 Morgan Stanley (NYSE: MS) back in 2004, bought the stock, ignored the market’s ups and downs, and simply held through to today.
| Start date: | 04/15/2004 |
|
|||
| End date: | 04/12/2024 | ||||
| Start price/share: | $53.50 | ||||
| End price/share: | $86.19 | ||||
| Starting shares: | 186.92 | ||||
| Ending shares: | 335.83 | ||||
| Dividends reinvested/share: | $35.76 | ||||
| Total return: | 189.45% | ||||
| Average annual return: | 5.46% | ||||
| Starting investment: | $10,000.00 | ||||
| Ending investment: | $28,965.55 | ||||
As we can see, the twenty year investment result worked out well, with an annualized rate of return of 5.46%. This would have turned a $10K investment made 20 years ago into $28,965.55 today (as of 04/12/2024). On a total return basis, that’s a result of 189.45% (something to think about: how might MS shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Morgan Stanley paid investors a total of $35.76/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 3.4/share, we calculate that MS has a current yield of approximately 3.94%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 3.4 against the original $53.50/share purchase price. This works out to a yield on cost of 7.36%.
Another great investment quote to think about:
“Taking risks is really the only way to consistently achieve above-average returns.” — Sam Zell
