Why Warren Buffett invested heavily in Coca-Cola (KO) in the late 1980-ies?


Warren Buffett bought more than $ 1 billion of Coca-Cola (Ko) shares in 1988, in an amount equivalent to 6.2% of the company’s shares, making it the largest position in its portfolio. The stock market crash in 1987 was created the attractive prices, as all kinds of stock were sold with little regard to fundamentals. Coca-Cola is the dominant company in the beverage industry and major food holdings as well. Further, Coca-Cola is a famous brand and global reach created a moat around its core non-alcoholic products, so Buffett will not have to worry a competitor will come and take their share of the market.

Coca-Cola purchased suggested that the investment philosophy Buffett has evolved from Benjamin Graham and focus on finding situations in which the value of the company exceeded its market price. This adjustment was necessary to account for the growing Size of Buffett’s portfolio, which made it more difficult to take advantage of market inefficiencies; it also prevents operational management and reduced the number of opportunities it can take that will have a significant impact on its performance.The influence of Charlie Munger, Vice-Chairman of the Corporation of Berkshire Hathaway, and his philosophy of ethical investment has also played a role.

Coca-Cola is a harbinger of change in the approach of Buffett, from “buy BAD companies at great prices” to “buy great companies at good prices”. Buffett’s investment in Coca-Cola grew by almost 16 times over the next 27 years, taking into account dividends. This is an annual increase of 11%, approximately.

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