Shares in this article
• Buffett has held Coca-Cola shares since 1989
• Long-term investment based on personal taste preferences
• Fall of the Berlin Wall as an additional reason to join
Star investor Warren Buffett makes no secret of his love for Coca-Cola. It is well known that not only the sugar drink, but also the company’s shares are among his favorites. For money manager Smead Capital, the reason for Buffett’s original purchase decision is clear.
Buffett invested one billion US dollars in the Coca-Cola group in 1989, acquiring 6.3 percent of the outstanding shares. In later years, Buffett primarily attributed the reason for the initial stock purchase to his preference for one of the company’s products, Cherry Cola: “When I bought Coca-Cola stocks in 1989, the happy consumer of five cans of Cherry Coke a day announced $ 1 billion worth of the move, I described this move as a pretty extreme example of how we put our money where my taste was. ”
He has since increased his stake to 9.28 percent and holds 400 million Coca-Cola shares through his holding company. This makes the stake in the beverage company the third largest in the Berkshire Hathaway portfolio; at the end of 2020, the block of shares was worth $ 21.9 billion.
Asset manager sees Coca-Cola as a prototype for Buffett’s investment strategy
Bill Smead, chief investment officer of asset manager Smead Capital Management, discussed the reason Buffett bought Coca-Cola shares in 1989 in an interview with Yahoo! Finance. The preference for Cherry Coke could only have been of secondary importance for the investor, because in fact the Coca-Cola share represents the investment strategy of the value investor in the best possible way. At the time of entry, Coca-Cola was undervalued with the prospect of a stronger market position in the future.
“For Warren Buffett, every investment is a value investment,” said the market expert. Buffett bought Coca-Cola shares in 1989 for 18 times the profit. He himself had already tried nine years earlier, when he was working as a stockbroker, at a price six times the profit and a dividend of 5 percent, but was not very successful, according to Smead. Nobody wanted this stock back then, Buffett bought it anyway. “What Buffett realized in 1989 was that the Berlin Wall was falling”. For Coca-Cola, this development has opened up new markets in which it has not been able to be active so far. “A number of countries that were previously closed would open their doors and the Coca-Cola Corporation would be able to sell their drinks to a large section of the population to whom they had never sold them before, and in emerging and less affluent countries It was very valuable to countries to have something clean to drink, “describes Smead Buffett’s presumed initial vision in the year the Berlin Wall came down.
Coca-Cola: The Perfect Buffett Stock?
In fact, the Coca-Cola share has turned out to be a prototype of a Buffett investment. The company’s business model is easy to understand, the prospects for growth remain good, and the company is also the market leader in its segment. In addition: Coca-Cola pursues a reliable dividend policy, investors have been receiving regular distributions for around 50 years, and the dividend has been increased at regular intervals. Additionally, Coca-Cola has regularly bought back shares in the past, which has increased Buffett’s stake in the company without him actively new shares had to acquire.
The Coca-Cola share cannot compete with tech stocks in terms of price performance, but has still achieved a plus of 20 percent in the last five years. What other investors would call “boring” stocks corresponds exactly to the loot scheme of long-term investor Warren Buffett. The fact that the company also produces his favorite drink, for which he personally entered into an advertising partnership, should be the icing on the cherry coke for the star investor.
Finanzen.net editorial team
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