Long term investing

I just made one interesting ‘what if’ investing scenario. Let’s say I bought 200 shares of Caterpillar (CAT) on 1970 for 640$ (share price was then $3.20). During 1970 – 2006 CAT had three 2:1 splits and one 3:2 split, which means that today I’d have 2400 shares.

During that time just dividends would’ve earned me $10029, which is 1500% of ROI (Return On Investment), which is 41% annually. Compare that with random banks long term savings account – they have interest rate of around 5-6%.

Here comes the fun part. As of today that 1970 year $640 stock would be worth exactly $174503 (2400 shares * yesterdays closing price was $72.71). If I’d used some options trading on that stock I’d get its cost basis down to 0 on 3-5 years (rough estimate) using just conservative trades like covered call, collar trade and protective put.

And, if I had been wise then I’d bought even more shares of CAT from its dividend earnings. Then I’d probably had 5000 shares which would be worth… well, a lot.

Makes you think what to do with your next salary, doesn’t it? Either go to cinemas and watch something like “Da Vinci Code” or buy one share of good company.