Why did Warren Buffett Invest in Coca-Cola in 1988?

By Advisorymandi
8-September-2018 8:24:22 AM
  •   
  •   
  •   

Warren Buffett is known as “Oracle of Omaha”, the most successful investor of all-time invested $1 billion in shares of “Coca-Cola” the most dominant company in the beverage industry, making it the largest position in his portfolio.

Anyone of you ever thought, “Why Warren Buffett heavily invest in Coca-Cola?”

Is it because he knew he couldn’t lose?

Well, only Warren Buffett knows this. We can only speculate and tell on the basis of the analysis.

Warren Buffett purchased more than $1 billion of Coca-cola (NYSE: KO) shares in the year 1988 after the stock market crash of 1987. The reason for doing this suggested that Buffett’s investment philosophy has somehow connected to Benjamin Graham. Also, it could make Buffett believe that the company was still undervalued.

As Warren Buffett predicted, the Coke’s price did not reflect any potential in its international sale.

To unlock shareholder value, the Warren Buffet’s investment properly utilized when the KO announced a buyback of 6 percent of its shares and increased the dividend by 18 percent. Not just Warren Buffet but Coke made important shifts in the early 1980s after failing in the 1970s. Under the new CEO Robert Goizueta, company strategized for international market which led to a significant increase in overseas sale. Buffett must have seen the potential in Goizueta and his remarkable mix of financial and marketing skills.

Also, the influence of Charlie Munger, the vice chairman of Berkshire Hathaway Corp., and his ethical investing philosophy also made Buffett invest in Coca-cola. One we can believe is the products of Coca-cola which are acknowledged internationally and the exemplary brand name which make it hard for any competitor to make a dent in Coca Cola’s brand.

 

How Rich Would You Be If You Followed Warren Buffett into Coca-Cola?

Almost every investor is inspired by the “Oracle of Omaha” and implements his stock market tips in their own stock market investments.

What if you invested in Coca-Cola with Warren Buffett, how rich would you become?

Following the crash of 1987, many sellers sold stocks without giving attention to fundamentals. During that period, the Warren Buffett saw potential in Coca-cola and recognized as an iconic name and brand. For these reasons, the Buffett invested $1 billion in the company in early 1988 when the stock cost $2.45 per share.

As of March 26, 2018, KO stock is worth about 17.4 times of what it was back then. According to the Coca-Cola Company, if you did the investment of $1000 alongside Buffett, you would have own approximately 408 shares in 1988 which would now worth more than $17,421.

 

Conclusion:

Coca-Cola has stood out not only because of the investment made by Warren Buffett in 1988 but also for its longevity. It is a cornerstone of Buffett’s holdings which defines Warren Buffett reputation of finding excellent companies and hold onto them for a long time. To this day, Buffett remains loyal to Coca-Cola and the company’s brand name is as strong as it has ever been.

709     0     11    

Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

Leave a Reply

Be the First to Comment!

Notify me of
avatar

wpDiscuz