Warren Buffett’s Long-Term Investment StrategyWarren Buffett’s Long-Term Investment Strategy Warren Buffett’s investment philosophy emphasizes a long-term holding period, often spanning multiple years. This strategy assumes the ability to make sound investment decisions even if markets remain closed for an extended period. Evaluating a Five-Year Investment in AES Corp To illustrate the potential impact of a long-term investment, we examine the outcome of a five-year investment in AES Corp (NYSE: AES) in 2019. Investment Parameters: * Starting date: July 19, 2019 * Starting price/share: €17.22 * Initial investment: $10,000 Investment Outcome: * End date: July 18, 2024 * Final price/share: €17.08 * Total return: 15.67% * Average annual return: 2.95% * Dividends reinvested/share: $3.09 Key Findings: * A $10,000 investment in AES Corp in 2019 would have grown to approximately $11,565.55 by July 2024. * Despite a slightly declining share price, the investment benefited from reinvested dividends, resulting in a modest return. * AES Corp’s current yield of 4.04% and yield on cost of 23.46% indicate a potential income-generating investment. Conclusion: In line with Warren Buffett’s philosophy, a five-year investment in AES Corp demonstrated the potential stability and modest returns associated with a long-term holding strategy. While market conditions can fluctuate, investing for the long term can help mitigate short-term volatility and potentially build wealth over time.
“I’m buying on the assumption that they can close the market the next day and not reopen it for five years.”
—Warren Buffet
Warren Buffett’s investment philosophy calls for a long-term investment horizon, and a holding period of five years or longer would fit perfectly into the strategy. How would such a strategy have played out for an investment in AES Corp (NYSE: AES)? Today, we examine the outcome of a five-year investment in the stock in 2019.
| Starting date: | 19-07-2019 |
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| End date: | 18-07-2024 | ||||
| Starting price/share: | €17.22 | ||||
| Final price/share: | €17.08 | ||||
| Starting shares: | 580.72 | ||||
| End of shares: | 677.24 | ||||
| Dividends reinvested/share: | $3.09 | ||||
| Total refund: | 15.67% | ||||
| Average annual return: | 2.95% | ||||
| Initial investment: | $10,000.00 | ||||
| Termination of the investment: | $11,565.55 |
As shown above, the five-year investment result worked out as follows, with an annual return of 2.95%. This would have turned a $10,000 investment made 5 years ago into $11,565.55 today (as of 18-07-2024). Based on total return, that’s a result of 15.67% (something to think about: how would AES shares perform over the next one 5 years?). (These numbers were calculated with the Dividend Channel DRIP Returns Calculator.)
Dividends are always an important investment factor to consider, and AES Corp has paid $3.09/share in dividends to shareholders over the past 5 years we looked at above. Many investors will only invest in stocks that pay dividends, so this component of total return is always an important consideration. Automated reinvestment of dividends into additional stocks can be a great way for an investor to link their returns. The above calculations are done assuming that dividends received over time are reinvested (the calculations use the closing price on the ex-date).
Based on the most recent annualized dividend rate of .69/share, we calculate that AES has a current yield of approximately 4.04%. Another interesting data point to examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of .69 against the original purchase price of $17.22/share. This equates to a yield on cost of 23.46%.
Another great investment quote to think about:
“Money is better than poverty, if only for financial reasons.” —Woody Allen
