Underperforming the S&P index
What I said two weeks ago about PepsiCo is also true for Warren Buffetts most famous investment, Coca Cola:
I won’t buy it today since the stock has underperformed the S&P 500 index massively over the past decade. $KO +65% vs +200% for the index is a clear message and I don’t see that changing for the next decade.
Additional point on Coke & Buffett
What I want to focus on today is how such a great choice from Buffett isn’t such a good choice for us today.
Between 1988 to 1989 Buffett via his company Berkshire Hathaway bought Coke share worth 1 billion dollars. This investment grew 10x in the first decade afterwards alone. Until today his average gains have added up to about +11% annually, plus all the dividends he got over those years. A really exceptional performance.
If we look at the recent performance over the last ten years it’s rather sobering. Share price increased +65% from 2014-2024 which is an annual return of 5.1%, less then half of what Buffett achieved.
Why? What was different back then?
In 1988, 548 million servings (0.25-liter units) of Coca-Cola products were sold every day. Today, Coca-Cola sells around 1.8 billion servings a day. The products are available in over 200 countries worldwide, with the exception of Cuba and North Korea.
When Buffett invested, the daily per capita consumption of bottled beverages in less developed countries was significantly lower than in the USA and Europe. One of Buffett's key assumptions was that consumption in the developing world would increase rapidly as per capita income rose. So far, this assumption has proven to be correct.
Learning
Coke was back in the 80s a big company already but not as saturated as today. These days though, their growth is limited and mainly comes from price increases over time, productivity improvements and cost reductions. Their business is stable, yes, since the brand is strong and people like to drink their products BUT they don’t have too much growth potential left.
So the learning here is, that the right timing of an investment is often very important for it’s success. In addition this case shows once more that stock markets trade the future. While future was bright 30 years ago as for Coke, it is probably not that bright anymore going forward.
