My obsession with Coca-Cola, especially its stock

 

If I had to admit to an obsession in the world of investing and stocks, it would be to one day be the part owner of The Coca-Cola Company, with the stock symbol I know better than any other, KO.

coke1

I have often talked on this site about what it means to be a Dividend Tycoon, and in the plainest language possible it is about being a tycoon, through ownership of amazing businesses, that pay dividends. Ownership of Coca-Cola stock is therefore a definite goal of this Dividend Tycoon, the sooner the better.

This article is not going to be an analysis of The Coca-Cola Company or the current valuation of the stock, because I think that information is easy to find and has been written about extensively elsewhere. I do not think it would serve a great purpose to regurgitate facts and figures about the company. All I will say is that it is the largest global non-alcoholic beverages company, operating in every country of the world bar North Korea and Cuba, has over 3500 brands (not just the traditional coke) of which 20 have annual revenues exceeding a billion dollars.

So what am I going to write about? I am going to write about why I have developed this obsession, how it came about, and how it sometimes makes even me think I am a bit strange..

  • It is tangible: When it comes to stocks I really think it helps as an investor if the stock is tangible to you. With Coca-Cola it is difficult to escape. It is in every grocery store, gas station, cinema, bar, even your own fridge sometimes. To me that makes it easier to stay invested in a stock.

Now the obsession bit. When I take a walk or a drive or whatever, I always notice people carrying their coke cans or bottles, sometimes even the bottles or cans lying discarded on the side of the road.. The Dividend Tycoon part of my brain cannot help thinking something along the lines of “Warren Buffett owns almost 10% of Coca-Cola, so he made a profit on that bottle lying there.” Sad, I know. I do though want this site to be honest and transparent, even if I end up looking strange.

  • The history: The Coca-Cola story is amazing. Again, the history has been written about extensively, but it amazes me that a small company based in Georgia, USA could grow first in the USA, then slowly making it’s way around the world, till practically the entire world is blanketed in the red and white logo.

Now the obsession bit. I love it when I watch an old movie, say from the 60’s or 70’s and you see the Coca-Cola logo displayed at some gas station or someplace in the middle of nowhere. I love the idea of thinking that it had already spread so far, yet in fact had so far still to go, and is still growing.

Also, I have read three books about the Coca-Cola company.

For God, Country, and Coca-Cola (Mark Pendergrast)

The Real Thing: Truth and Power at The Coca-Cola Company  (Constance L. Hays)

Inside Coca-Cola: A CEO’s Life Story of Building The World’s Most             Popular Brand (Neville Isdell)

I do not tire reading stories about the growth and the early small investors, the big investors, the challenges overcome.

  • The investment legends: I cannot write an article about Coca-Cola without mentioning the purchase in 1988 of a big chunk of Coca-Cola by Berkshire Hathaway, headed by Warren Buffett. To me this purchase defines Berkshire and Buffett. I know much is made of the insurance operations and other operating businesses owned by Berkshire Hathaway, but I truly believe that this purchase was the one that gave Warren Buffett the most joy. By all accounts he steeped himself in all things Coca-Cola shortly after this purchase, filling his office with Coca-Cola memento’s for example, and then joining the board of directors. When I read the biographies of Warren Buffett I pick up his joy in secretly acquiring his initial stake, buying huge chunks of KO stock before the market knew it was him buying.

Now the obsession bit. Warren Buffett is an example of a big investor, who understood the opportunity Coca-Cola presented, when the company was coming out of a rough patch, and against conventional wisdom heavily concentrated his investments in Coca-Cola. It is today a fairly small portion of Berkshire Hathaway’s assets, but in 1988 was substantial. However, it is with the smaller investors that my obsession takes root again. Here are a few examples I have read about:

The small town of Quincy: This town in Florida had a banker named Pat Munroe. When Coca-Cola had been around for decades already, around 1920, Pat Munroe could see the vast potential for expansion of the drink. He thus encouraged the residents of this small town to buy stock in Coca-Cola. Many took his advice, and despite the town suffering some severe economic downturns, many residents become millionaires on the back of their Coca-Cola stock. Apparently you can still see the Coca-Cola mansions dotted around the town.

See my post on Ann Scheiber, Coca-Cola was one of the stocks boosting her wealth to $22 million from an initial $5000 stake.

I love these stories, because they give me hope. Hope to find my own Coca-Cola. I believe I may have a few in my South African portfolio. I have written about a few of these hopefuls, and will write more in future. None have been life changing yet, but it is still my hope that some of these, or stocks still to be invested in, will in due course give me a story like these Coca-Cola investment legends.

  • The amazing figures:

Warren Buffett in fact gave a speech some time back where he said that had you invested $40 on one share of Coca-Cola when the stock went public in 1919, and reinvested the dividends it would be worth $5 million. It is now probably closer to $10 million, but I think you probably see the point..

Conclusion:

The Coca-Cola Company is perhaps going through a tough time at the moment. There are concerns about sugar and concerns about where it will still find growth. However, I took a walk around my local CBD yesterday, and in every fast food outlet I could see people sitting with their Coke or Fanta, and every corner store had the trademark Coke fridge in it. This business is not going away anytime soon, it will continue to pound out profit and dividends for decades. In fact it may just be the Coca-Cola story stock I am looking for..

 

 

Anne Scheiber: An amazing, but slightly tragic, Dividend Tycoon

Readers who have read many personal finance and investing articles may well have come across the story of Anne Scheiber before, but I think it is worth having a look at her life in the context of being an inspiration to anybody wanting to become a Dividend Tycoon, yet taking into account the lessons from her story on why balance in life is also important.

A brief overview on the life of Anne Scheiber

She lived in New York, and when she was in her thirties, at the time of the great depression, she lost all her money she had entrusted her brother to invest for her. She managed to save $5000 from her modest paying IRS auditing job, and started on her own investing path in her forties with this and her $3150 annual pension. She also lived till 1995 – to the age of 101.

The amazing part

On her death it was established that her investments were worth $22 million!  This was established as she left the money to Yeshiva university to help women in need, even though she did not herself attend the university.

To turn $5000 into $22 million is obviously no easy feat, so she must have done many things well. Looking at what has been written, I would say the most important would be:

  • Not selling her dividend paying stocks or trying to time the market. She did not sell out during the numerous crashes she would have experienced during her lifetime. This is not easy when the world is crashing around you, but history has confirmed that the dividend aristocrats such as Coca-Cola are not badly affected on an operational level, and continue to pump out both profits and dividends, so why sell when the stock price tanks? You would not sell your profitable McDonald’s franchise because the share market falls 30%.
  • High savings rate. Unfortunately it takes money to make money. For the ordinary person the only source of capital is normally saving part of your income. In Anne Scheiber’s case her saving rate was around 80%. This is incredibly high and by all accounts she was extremely frugal and spent very little on herself. She is obviously an extreme case, but it does show what is possible.
  • She attended shareholder meetings which were based in New York. Now apparently this was partly to obtain free food and refreshments.. well she did turn $5000 into $22m, and as per my previous point you have to think she did some unconventional things! But I think she was also genuinely there to monitor her investments. Attending AGM’s has helped me gain a better feeling for companies I have invested in, sometimes you need to see the body language of directors, and reading only gets you so far. I would put attending AGM’s in the same camp as visiting your dividend machines, see my earlier post on this subject: http://www.dividendtycoon.com/blog/2016/04/22/visiting-your-dividend-machines/
  • She invested in top quality brands, such as Coca-Cola, Pepsi and Schering -Plough (the pharmaceutical company). Therefore the companies themselves compounded earnings, paid out generous dividends, which she reinvested. In later years she also invested in tax free municipal bonds.
  • So what did being a Dividend Tycoon do for her finances on a cash flow basis? At her death, her dividend and interest income was $750000 per year. Think about that $62500 coming to you every month, whether you get out of bed or not in the morning. No wonder she lived till 101! And she started with only $5000! This just shows the power of compounding. Even if you are not as dedicated as Anne Scheiber, you can get a pretty good result if you allow compounding to take its course. It is not get rich quick, but it is likely you will do well if you do the right things.

The slightly tragic part

Well I said that with $62500 (in 1995) coming through the door every month, she was likely to be happy, which would have contributed to her long life. From what I have read though she does not appear to have had much of a life, although I do not feel one can judge whether she was happy or not. She was a recluse who had no friends and had shunned family, her only real contact being those people who in some way administered her wealth such as stockbrokers. This strikes me as rather tragic, and a waste, surely she should have at least had some pleasure from her wealth such as travel and sharing meals with friends?

My conclusion

I admire the fact that she gave her fortune to a good cause, and in general one would have to say that she gave more to the world than she took out. Besides money, she also left great lessons. Any aspiring Dividend Tycoon can get inspiration from how she compounded her wealth. But she also left the lesson that balance is important and that it is okay to use some of the money for things that are meaningful to you, especially once you are already wealthy and not still in the building phase.

In conclusion, I would have loved to have been able to sit down and have a cup of tea with Anne Scheiber, to discuss her investments, her strategy and her outlook on life. I think it would have been fascinating, even if I would most likely have had to take along my own tea bag..

 

 

Warren Buffett – Dividend Tycoon?

I have been meaning to write a post about the influence of Warren Buffett on my quest to become a Dividend Tycoon since the annual Berkshire Hathaway meeting on the 30th April. It would be a dream to travel to Omaha and see Buffett in person, and to experience the meeting. However, it was a treat to watch the first ever webcast of this event from the comfort of my study. My first exposure to Buffett came when I picked up ‘Buffett: The Making of an American Capitalist‘ by Roger Lowenstein about 10 years ago. I was fascinated by his approach to investing, and I identified with much of his outlook in life. In many ways he is the ultimate Dividend Tycoon, but more on that later.

I started to see my own portfolio as my own form of Berkshire Hathaway, albeit on a miniscule scale, where I could invest for the long term, in businesses that would be around for decades, and be the capital allocator of any dividends received or new capital added. It taught me to think about stocks as businesses, not pieces of paper to be traded. I started to look at which businesses had an enduring business model, good brands and loyalty.

I have certainly made many mistakes along the way. Probably the biggest mistake I have made is impatience, see my post here: http://www.dividendtycoon.com/blog/2016/03/10/why-i-regret-being-impatient

I have not included all of them, but the following are some of the principles that I have learnt from Buffett, and which steered me in the direction of becoming a Dividend Tycoon:

Avoid excessive trading

Despite my impatience referred too, my two biggest positions have been held since 2010, and I hope to keep them for many years to come. I see these as my ‘Coca-Colas’, good cash generative businesses that can keep generating cash for the long term. I have sold stocks I should not have, but take comfort that Buffett bought 5% of the Walt Disney company in 1966 for $4 million and sold it for $6 million. Had he kept it this 5% would be worth at least $8 billion at present..

Invest for the long term

A statement made by Buffett on long term investing has always stuck with me. He said that if you owned an apartment block,  McDonald’s franchise and auto dealership in your town, why would you sell them? You would be more likely to hold onto them because the price is not quoted everyday like it is for stocks. I have tried to imitate this in my own way, see my article on How I bought a Burger King “Franchise” here: http://www.dividendtycoon.com/blog/2016/04/11/how-i-bought-a-burger-king-franchise/ I have held onto this stock, despite a lot of volatility and a falling stock price of late.

Reading

Buffett attributes much of his success to the fact that he reads a tremendous amount. He reads annual reports, newspapers, business journals, biographies and pretty much anything to do with businesses. To be a successful Dividend Tycoon I believe one needs to gain an edge over other investors and reading is one area where you may do so. You may find information about stocks which have not yet been discovered by the mainstream institutions, and an early investment in these stocks may pave the way to life changing profits or stocks that become dividend machines. Think about reading about the rise of Wal-Mart in the 1980’s, could that have been useful?

Frugality

The life blood of a Dividend Tycoon is capital to invest. Without capital to invest, all the best intentions in the world will come to nothing. Being frugal will help build the initial capital to invest. Buffett himself drove an old car for longer than he had too in order to accumulate capital. Do this long enough and eventually the dividends will pay for lifes luxuries. I have tried to be frugal where possible in order to save capital, and am starting to see some benefit in terms of passive income and dividends.

Conclusion

This post only touches on some of the lessons I have learnt from Warren Buffett. His teachings on specific stocks are for another day, his 1988 purchase of a large chunk of Coca-Cola is still a legendary purchase in my eyes and the one I remain most fascinated about. Berkshire receives over 500 million dollars per year in dividends on this one investment, so yes he is a Dividend Tycoon! (He really loves receiving those large checks from Coca-Cola every quarter)

I will in future come back to Warren Buffett and Berkshire Hathaway, but this post is just to pay tribute to him for some of the inspiration he has provided on my own journey towards becoming a Dividend Tycoon.

Further Reading: The Snowball (Highly recommended)

 

Lessons from Johnson & Johnson

I came across a book in my local library a few weeks ago, called Johnson vs Johnson. I have been fairly busy, so am only about a quarter of the way through it, and the book is more about the sad saga of battle between family members contesting the will of one of the second generation Johnsons, and the sometimes blighted lives of the children who inherited stock in the company. The book is fairly old now too, it was published in 1987.

However, the idea for an article came to me very early on in the book, as I read some amazing facts about the stock, even though the book is almost 30 years old, and the stock has in that time multiplied by about 30 times the price it was back then (split adjusted), and a dividend which is approaching the then price of the stock. The amazing thing is that if I had read the book back in 1987 I may have thought that the growth in the stock was fantastic, but surely it must come to an end soon, given such an incredible return.

So what did I read? “Seward Johnson was a second-generation inheritor. In order to accumulate his vast fortune, all he had to do was hold on to the stock in Johnson & Johnson bequeathed to him by his father and let his brother run the show.” This to me was very powerful in its relevance to becoming a Dividend Tycoon, because you could quite easily replace his brother with the current board of directors or employees, the key point is you do not have to do any work yourself, you can sit back after making the investment and enjoy the growth and subsequent dividends. However, what I read next was even more powerful. “In 1944 Seward Johnson’s stockholdings were worth approximately $9 million. Today those same holdings would be worth approximately $2 billion.” This was in 1987! Imagine what they would have been worth today, and all he had to do was hold on to the stock.

Now you may say he was lucky because nobody knew in 1944 where the stock would go, but if you had bought the stock in 1987 after watching this success over the previous 43 years, you would have a Johnson & Johnson dividend machine by now, it was hardly a secret success story in 1987.

Now, I have only just read part of this book, and have not analysed Johnson & Johnson in detail yet (I plan to though!), but the key point for me is that this is why it is great to be a Dividend Tycoon, and to hold stocks that are consistently profitable, and raise their dividends every year like clockwork, you are almost guaranteed a great result. It is not even hard to find them, it did not take me long to look around my house until I found a Johnson & Johnson product.

Now please excuse me as I go and look through the bathroom cabinet and kitchen cupboards for some other ideas for becoming a Dividend Tycoon.