Source: Tencent US stocks

No matter what occasion it appears, Warren Buffett seems to have a bottle of Coca-Cola Company in his hand, and "Fat House Happy Water" is no less popular and well-known around the world than Buffett himself-despite his favorite cherry taste, it may not be acceptable to his die-hard fans.

Although many health experts say that cola drinks contain too many calories and sugar, which can cause a series of problems, Buffett has his own way. He once told Fortune magazine: "if I eat 2700 calories a day, then 1/4 of them should come from Coca-Cola Company." 12 ounces (350 milliliters). I drink at least five tins a day, every day. 1/4 of my body is made up of Coca-Cola Company. "

In the face of this kind reminder at the shareholders' meeting in Omaha, Buffett showed his wise and unique humor: "actually, I really wish I had twins and could do an experiment." We eat the same amount of calories every day. The difference is that he only eats broccoli. I know that I will certainly be happier, so I am likely to live longer. "

As an investor, Buffett also tried to make a technical analysis of Coca-Cola Company's unique charm. He once wrote in the shareholder letter: "there is one thing that people do not understand."... Coca-Cola Company has no taste memory. You can have a bottle at nine in the morning, one at 11:00, and another at five in the afternoon. You can't make any other drink, whether it's vanilla soda, root beer, orange juice or grape juice. The average person needs to drink 64 ounces of liquid a day, and it's okay to drink all of Coke. Other drinks will be uncomfortable if you keep drinking for a while. Only Coke has no taste memory. "

Return nearly $30 billion

As we all know, Coca-Cola Company is one of Buffett's long-standing heavy stocks, which he began to invest from the end of 1988 to the beginning of 1989. At the time, he paid $1 billion for his first purchase, acquiring 6.2% of Coca-Cola Company's entire stake, which has been at the top of Buffett's portfolio for a long time since. By the end of the fourth quarter of 2019, Buffett still had a 9.3% stake in Coca-Cola Company, worth about $22 billion, a unique fate that had held Berkshire's top 10 holdings for more than three decades.

So, how much money did Coca-Cola Company's stock make for Buffett over the years? At the end of 2019, Berkshire's Coca-Cola Company shares were worth about $21 billion more than the purchase cost-a huge gain that still exists only on paper, of course, because Buffett will never sell such an investment.

It must be pointed out that most of the increase in Coca-Cola Company's share price was mainly achieved in the first half of the more than 30-year investment cycle, while the stock price trend in the second half was relatively inferior. Buffett himself made no secret of this.

However, the so-called "relatively inferior" here is only the difference between "excellent" and "good", and many investors and even the financial media regard Buffett's failure to sell Coca-Cola Company "in time" as his "mistake". I don't know where the absurdity has gone. The key here is that the eyes of short-term speculators can only see the stock price, and only the brains of real investors can understand another important layer of significance of Coca-Cola Company's investment to Berkshire-a substantial and stable dividend. Coca-Cola Company has a rich dividend and has a history of continuous distribution and continuous issuance for more than half a century, so he is regarded as the "king of dividends" by the investment community.

In the more than 30-year investment cycle, Buffett can get a huge cash gain from this investment every quarter, totaling about $7 billion-- it is well known that the fulcrum that pries Buffett's investment magic lever is the "floating deposit" of the insurance business, and the dividend is actually a powerful supplement.

In short, Coca-Cola Company's investment has become one of Buffett's classic works, when it comes to buying excellent enterprises at a reasonable price, including himself, this is often the first example cited by everyone. However, not everyone knows that although Buffett officially invested in 1988, he became interested in the stock as early as half a century ago.

A seven-year-old Coke vendor

That was in 1937, when Buffett was only seven years old. The summer in Omaha was as hot and humid as it is today, except that people did not have air conditioning. In order to cool off, many people simply sleep on the outdoor lawn at night. Buffett looked at it and suddenly thought, isn't this damned weather a good business opportunity to sell soft drinks to everyone?

So he began to do his own research. At that time, every gas station had refrigerators, sold all kinds of soft drinks, and had special small baskets of bottle caps. Buffett spent weeks at gas stations, collected a large number of bottle caps, and found that Coca-Cola Company had more caps than all the other drinks combined. Buffett decided to sell Coca-Cola Company himself. Coincidentally, Buffett's grandfather opened a grocery store, so he started the business of buying Coca-Cola Company on credit from his grandfather to sell door-to-door sales to his neighbors, and made a lot of money for a time.

However, when he recalled the scene many years later, Buffett stressed that he had made a mistake-he should have exchanged the money earned by selling Coca-Cola Company for Coca-Cola Company stock. In fact, it was precisely because of the missed golden opportunity that Buffett had to wait for half a century.

This wait, wait until 1988 to 1989. In 1991, Buffett wrote in Berkshire's annual report: "in 1989, when I, a happy consumer who drank five cans of Cherry Coke a day, announced that we had bought $1 billion worth of Coca-Cola Company stock, I had to say." this is the best interpretation-money goes where other people's mouth says, and money goes where I drink it. "

One holds it for 30 years.

Of course, this investment is definitely not only because of Buffett's own preferences, but also because he saw that Coca-Cola Company at that time had a lot of profits from overseas and had household names of legendary brands, which laid the foundation for the company's long-term growth in the future. At the same time, the company's share price was only about 16 times its 1988 profit, which was reasonable.

By the late 1980s, Coca-Cola Company's net income had grown at an average annual rate of about 12% over a few decades, and it was rare that the quality of earnings was unusually strong and stable-no less than 10% every year. In addition, they also maintain a long-term record of light asset operations. As long as a small amount of capital can maintain the growth of the company, they can generously return large amounts of cash to shareholders, such as additional dividends and share buybacks.

From 1983 to 1988, Coca-Cola Company bought back 11% of its outstanding shares. In addition, the sustained growth of dividends is also the tradition of Coca-Cola Company, which has been issued year after year for many years. From 1970 to 1988, Coca-Cola Company's dividend grew at an average annual compound growth rate of 9.35%, from 24 cents a share to $1.20.

As a result, Buffett hit hard, so that Coca-Cola Company immediately accounted for nearly 1/3 of his common stock portfolio at that time. From the standpoint of hindsight, many people may think that Buffett's decision was no big deal. This is a recognized excellent enterprise, with a strong brand, considerable growth prospects, and a light asset enterprise that can generate a lot of cash. Of course, just as important, there is a reasonable level of share prices. The key is, first of all, hindsight is always hindsight, and second, the buying price is very important, so Buffett, who saw the power of Coca-Cola Company 50 years ago, will wait until then.

As we all know, one of Buffett's famous quotes is that he wants the cycle of owning a stock to be "forever". This means that buying is only half the success, and holding is not that easy. Individual stocks always rise and fall, and the market continues to pass through the cycle of bull and bear markets, and the nerves of investors are tested all the time.

Buffett is as stable as Mount Tai.

For example, Coca-Cola Company's share price fell from $30 to $20 between 2008 and 2009 after the global financial crisis. On paper, this means that investors have suffered about 40% of their losses. This is enough to scare many people and cause them to cut meat and exit, although in fact, it is only years of hard work that has been destroyed. However, Buffett is quiet, because real long-term investors have a different perspective-if you can look at the actual business conditions of the investment company itself, rather than market fluctuations, your mood will naturally be less nervous. This way of thinking is the secret to the success of Buffett and many other investors who have really bought and held for a long time.

Buffett's old partner Charlie Munger once bluntly pointed out that if you don't know what to do if the price of a stock you invest in falls by 50%, then I'm sorry, you're not born for the stock market. In fact, Berkshire's share price has been challenged four times since Buffett and Munger took over.

It seems to have foresight, in the 1993 shareholder letter, Buffett mentioned the anecdote of Coca-Cola Company stock price: "Let's supplement a historical experience: Coca-Cola Company was listed in 1919, the issue price is 40 US dollars." By the end of 1920, after a pessimistic reassessment of Coca-Cola Company's future, the market had pushed its share price to $19.50, more than 50 per cent below its offering price.

However, as a result, Coca-Cola Company's stock, which was reinvested in dividends, was worth more than $2.1 million by the end of 1993. As Ben Graham said:'in the short term, the market is a voting machine that reflects the results of the voter registration test. As long as there is enough property, there is no requirement for mental or emotional stability, but in the long run, the market is a weighing machine.'"

The fact is that Coca-Cola Company's earnings per share were $1.51 in 2008 and $1.47 in 2009, which means that in the worst recession seen since the 1930s, Coca-Cola Company's earnings per share fell by only 4 cents a year, which could be the result of rounding calculations. At the same time, Coca-Cola Company's annual dividend increased from 0.76 cents to 0.82 cents from 2008 to 2009.

Did Coca-Cola Company fail?

Admittedly, in recent years, as the concept of healthy living has become increasingly popular, many consumers have begun to say "no" to high-sugar and high-calorie drinks, and the entry of energy drinks, a new player, has also made traditional carbonated drinks suffer. However, although Buffett admitted in a 2018 interview with CNBC that Coca-Cola Company "doesn't look as good as he did five or ten years ago," he still sees it as a "very good company." Coca-Cola Company himself is also looking for a new direction of development, starting to expand into coffee and tea, sales of these new products are growing, but their profit margins are not as high as traditional carbonated products. Even so, Buffett enthusiastically supported the effort.

At the same time, Buffett also explained to investors that Coca-Cola Company's growth prospects may not be as good as they used to be, but they still have the best distribution system in the world, which means that their various energy drinks, or new products such as coffee-flavored cola, can come to a new generation of consumers more easily than competitors.

In fact, it is easy for careful people to find that companies like Coca-Cola Company and McDonald's Corp are less vulnerable to economic cycles. Even at the height of the Great Recession, people drank Sprite in restaurants, and Powerade sports drinks were seen on the sidelines of basketball. How can a company with global influence, low product prices, covering 207 national and regional markets and 30% return on equity run into big trouble because of such a small episode?

He has waited for 50 years to buy shares in a target company, which is enough to show how extraordinary discipline and patience Buffett has as an investor, and when the time comes, he will go all out to show his judgment and boldness, and finally, to be able to hold on to all kinds of thrilling markets in the eyes of others, among which there is even more wisdom worth savoring by all investors.