| On Buy-and-Hold |
February 1985I've bought, held and DRIPed1 shares of Bell Canada Enterprises (BCE) since 1985. Over those years the stock price fluctuated, as do all stocks -- even conservative widows and orphans stocks like Ma Bell. But I held fast nonetheless, what Warren Buffett terms, "forever."May 2000BCE spins off most of its interest in Nortel Networks (NT.) Based on the price of the new BCE "stub" shares my original investment, despite all the volatility, has grown at a CAR2 of some 11% or 12% over the years. That in itself isn't too shabby an investment.And now, post-spinoff, BCE will once again pay a healthy 3+% dividend, I'll continue to DRIP the shares and (hopefully) they'll continue to grow. Eventually I expect they'll provide a nice income stream in my retirement. But wait, there's more! As a bonus, they're throwing in a whack of NT shares for free. Not only free, but the transfer is also tax free. Now realize that these freebie shares have a market value that's more than 3 times the BCE stub shares. And they're in a market-leading new economy stock. Now that is not too shabby either, considering the cost. So who cares if the new generation of hyperactive day-traders think that those who "buy and hold forever" are just a bunch of old fogies? Well we patient old fogies prefer to invest in new economy stocks the "old fashioned way.3"
March 2001Since I wrote this page last year, Nortel shares rose from about $80 at spinoff to a high of about $124 in August. Then following the crash in technology stocks that started in the fall of 2000 they're now going for only a fraction of their peak price.Is that a disaster? Perhaps, considering that I could have sold the shares in the summer. But then again, maybe not. My original BCE purchase in early 1985 was 100 shares at $37 for a total investment of $3,700. There must have been some a brokerage fee, but since I can't find the trade confirmation slip, let's ignore it. In any case, since then, including reinvested dividends and stock splits -- but no further stock purchases -- I now have 452 shares of BCE (recent price ~$37) and 693 shares of NT (recent price ~$25.) Let's see how I've done, even after NT's fall from grace.
BCE So the BCE shares alone have appreciated at a CAR of 9.8%.
BCE + NT So the original BCE shares, including the "free" NT shares from the spinoff, have still managed to appreciate at a CAR of nearly 15%. Contrast that with the TSE 100 total return index which managed to return only about 11% CAR. The only "disaster" here is that I didn't buy more shares back in 1985 :-(
update May 2001According to their website, Nortel closed on 03May01 at CA$24.45 per share.The split-adjusted share prices of Nortel 5, 10 and 15 years ago were $8.78, $5.17 and $2.61, respectively. The CARs over those periods, ignoring dividends, were 22.7%, 16.9% and 16.1%. For comparison, the TSE 100 index CARs, including dividends, were 11.0% over both 5 and 10 years ending 30Apr01 and 10.9% over 15 years ending 31Dec00.
1. Dividend Re-Investment Plan 2. Compounded Annual Return 3. A phrase made famous in ads by US broker Smith Barney.
|