Thursday, May 28, 2009

Buffett on Coca-Cola: Berkshire Shareholder Letter Highlights

Warren Buffett wrote, in the 1989 Berkshire Hathaway (BRKa) shareholder letter, the following about its new investment -- well, at least at the time -- in Coca-Cola (KO):

This Coca-Cola investment provides yet another example of the incredible speed with which your Chairman responds to investment opportunities, no matter how obscure or well-disguised they may be. I believe I had my first Coca-Cola in either 1935 or 1936. Of a certainty, it was in 1936 that I started buying Cokes at the rate of six for 25 cents from Buffett & Son, the family grocery store, to sell around the neighborhood for 5 cents each. In this excursion into high-margin retailing, I duly observed the extraordinary consumer attractiveness and commercial possibilities of the product.

I continued to note these qualities for the next 52 years as Coke blanketed the world. During this period, however, I carefully avoided buying even a single share, instead allocating major portions of my net worth to street railway companies, windmill manufacturers, anthracite producers, textile businesses, trading-stamp issuers, and the like. (If you think I'm making this up, I can supply the names.) Only in the summer of 1988 did my brain finally establish contact with my eyes.

...Of course, we should have started buying Coke much earlier, soon after Roberto and Don began running things. In fact, if I had been thinking straight I would have persuaded my grandfather to sell the grocery store back in 1936 and put all of the proceeds into Coca-Cola stock. I've learned my lesson: My response time to the next glaringly attractive idea will be slashed to well under 50 years.


If a business is durable enough you can afford to be "too late" on an investment. KO is up over 700% (700% excluding dividends but the total return would be over 1,000% if you include the dividend payments) since Berkshire bought the stock back in 1988.

There is a good probability that KO will increase in value just fine over the next twenty years.

Adam

Long KO and BRKb
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