When Is The Best Time To Buy Coca-Cola Stock? Anytime You Got The Money

After I plugged my recent article about Ty Cobb and the Coca-Cola stock on Seeking Alpha, I received a link from regular SA contributor Charles Margolis highlighting the town of Quincy, Florida, which is filled with dozens of legacy millionaire families that built their fortunes by taking all of their disposable income from their blue-collar jobs to buy Coca-Cola stock, which they used to become millionaires during the second half of their lives. Although I had already been familiar with the story before Charles pointed it out to me, it’s a great story that can withstand a bit of repetition.

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Some of these blue-collar millionaires used the Coca-Cola share appreciation and dividend income to set up significant charitable causes, while others constructed trust funds for the future generations of their family so that their heirs could attend college, start businesses, and buy starter homes without having to incur debt to do so.

To read the CBS News article on the topic, click here: http://www.cbsnews.com/8301-500609_162-1198.html

It is clear that, to these folks living in Quincy, the answer to most of life’s problems is some variation of “buy more Coca-Cola stock”. Per the article:

BRADY: No wonder. One share bought in 1919 for $40, dividends reinvested, you’d have today $5,629,831.00, all out of that one $40 share. Mort Bates started buying when he was 12; he’s still buying.

MORT BATES: A young friend of mine called me up one day and asked– he says, “Mort,” says, “when is the best time to buy Coca-Cola?” I said, “Anytime you got the money.”

BRADY: At Bell & Bates hardware, Mort Bates’ store, you can get investment advice on Coke anytime.

Although many of these Coca-Cola millionaires still keep over 90% of their total wealth in Coca-Cola stock and the bank trust departments still maintain a crazy high percentage of Coca-Cola stock (65%) in client portfolios, the lesson that we should take from reading about folks like the Coca-Cola millionaires is not that we should never diversify.

Rather, I have two takeaway points after reading the CBS article:

(1) First, you only have to get rich once. Actually, I want to be more specific than that and speak in terms of cash flow. One of the most intelligent things that you can do with your financial life is get your hands on some reliable forms of cash flow (this is why I cringe everytime I hear about someone cashing out a trust fund for a lump sum or selling their monthly income rights from a pension in exchange for a singular lump sum payment).

Successful finances is all about positive cash flow, positive cash flow, positive cash flow. You only need a couple high-quality assets on your household’s balance sheet to start making big changes in your life. If you bought 100 shares of Royal Dutch Shell every year since 2005 (this means you’d be setting aside $4,000-$6,500 each year, on average, to buy the shares depending on the price), you’d have 900 shares of Royal Dutch Shell on your personal balance sheet that would be adding the equivalent of about $270 to your monthly cash flow. Do that a dozen or so times in your life, and the world is yours. Investing is great because it’s all cumulative. As long as the assets continue to generate profit, and you don’t sell, you can’t help but get paid to wake up in the morning.

(2) This is a nice reminder that, with the top-quality blue chip stocks, you should buckle them up and put the child lock on so that there is no chance of escape. You don’t want to see the likes of Exxon Mobil, Colgate-Palmolive, Johnson & Johnson, PepsiCo, and Coca-Cola leave your portfolio just because they get a little (or even moderately) overvalued.

If some kindred soul would have bought me $10,000 worth of Colgate-Palmolive on my birthday 24 years ago, I’d be sitting on $360,000+ worth of the legendary toothpaste and soap maker today. All for doing nothing except taking the dividend checks to the bank. If I wanted to sell it, I could buy a very nice mid-to-upper middle class home and never have to worry about the threat of homelessness for the rest of my life, provided I was able to pay the property taxes. Or (and this is what I’d likely do), I’d take the $675 in monthly dividend income that the stock sends me (in real life, the income comes in on a quarterly basis) and either meet my living expenses, plow the money back into even more Colgate stock, or invest the money into some other cash-generating asset. Of course, I didn’t have that relative give me $10,000 worth of Colgate stock when I was born, so I’ll have to make it myself. No big deal, the good stuff in life is more meaningful when you earn it yourself, anyway.

If you read that story about the Quincy millionaires, the point is that you should run out and put all your money into Coca-Cola stock (although there are limits to how much I can criticize this approach, since it brought the Quincy townspeople much more material wealth than I’ll ever be able to create in my lifetime), but rather, that you need to have those ten or so positions in excellent companies that you never sell, and only use the income as needed. With Coca-Cola trading in the low $40s at the time of writing, it’s hard to see how you could screw up in life if you make it a priority of yours to get your hands on a couple hundred shares and watch the dividends pile up over time. The lack of effort necessary to generate regular, dependable growing income from these companies is what makes the whole thing so damn appealing.

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7 thoughts on “When Is The Best Time To Buy Coca-Cola Stock? Anytime You Got The Money

  1. says:

    Tim — your articles consistently excite me and drive me a little crazy at the same time. I love the premise, but I'd also like you to address this question (maybe in a future article): Can huge piles of wealth be generated this way with KO any more (with only, say, a couple of decades to work with), or do you need to find the "next KO"? Many of your articles have this "if you had only bought some shares of XX decades ago you'd be crazy rich right now" notion at the heart of them. Well, sure. But I didn't, and neither did my parents or grandparents. I think accumulating shares of reliable DG stocks is sensible, and that's what I'm doing (JNJ, PG, COP, MO, PM, MCD, AFL, LMT, WAG, WFC, etc.). I can do my projections and see that if I contribute enough new money and get a certain level of dividend growth, and if there are no serious meltdowns, I'll have a nice income stream in retirement. But I'm not talking "trust funds for my descendants" wealth. I'm just talking about "not too worried about the cable bill" wealth. Granted, that's nothing to sneeze at. But I'd much rather get loaded and move on to the philanthropy phase of my life. So I feel like your articles are a little frustrating in this sense. Yes, you do only have to get rich once, but do you really think that mature DG companies like these can generate real, capital "w" Wealth going forward, or just reliable income streams? Or, to achieve a life of luxury wealth in one's own lifetime, do you need to find the "next KO" — a company with huge growth prospects in front of it for many years before it settles into a mature DG pattern? That is a much harder company to find than the old reliables. And harder still to commit more than a few speculative dollars to. What do you think?

    Thanks, as always, for your excellent articles.

    1. Monty says:

      I can see where you are coming from. It appears that all of the great opportunities have passed. If you look at all the possibilities though, they are substantial. Most of the world still lives in poverty. Over the years many are getting richer and richer. This will give a huge boost to the established consumer staples companies. I recall looking at McDonalds years ago and didn't think they had much expansion left. Obviously they were just getting started. The emerging markets will be the story over the next 40 years as we are truly becoming a global economy. It was enjoyable watching Japan's economy 10-20 years ago. Now the story is the BRIC countries, which still have a long way to go. Buy and enjoy the ride is my moto.

    2. Waterbuffalo says:

      Kerim:

      You don't have to find the next KO, because KO is here today. Reliable income streams, reinvested during your working years, plus many DG companies will inevitably split their shares a few times in the next few decades, plus the new shares you buy along the way will absolutely equal many shares and great wealth in the future.

      Think of the hundreds of thousands of tubes of toothpaste that Colgate sells in X amount of time. They make a profit from each of them. Since they give those profits to shareholders in the form of dividends, the company's market cap doesn't go up all that fast, as so much money is "given away" and not left on the books – But that doesn't mean that they do not grow as fast or faster than "the next Colgate" when dividends are reinvested and growth rates are averaged out over the course of the few decades.

      You can buy SODA (the next KO – or so it is touted today) or you can buy KO. For my money, its KO hands down.

  2. Tampabay says:

    Why doesn't SOMEONE in this Country tell Young workers to take 10% of their take home pay and invest it in Blue Chip Companies in THIS country (they live/work here) and Quit worrying about their retirement & SS Ect. The School System won't tell them…Would somebody? the Kids that do are are Home free… the ones that don't …who cares?

    1. says:

      I completely agree Tampabay. I wish someone had told me, but I didn't get started til I was 28. Now I've got small investment accounts for my 2 young boys, and I will be teaching them just as soon as they're old enough!

  3. says:

    Tim,

    I always enjoy your articles, and I'm so happy that your new site is doing well. On a bit of a tangent of the comment that Kerim made, I often wonder if some of the most reliable blue chips are here to stay. I've seen in the last few years quite a shift in our society from rampant consumerism to more homesteading—with the concern of GMO and poison and disease-ridden food, plus harmful chemicals found in just about everything, people are becoming do-it-yourselfers, from growing their own food to making their own cleaning supplies. Most people I know (out of college and under 45ish) won't touch soda or fast food with a 10 foot pole. There's a lot of scary info out ther, and I'm seeing a big difference since just 5 years ago. What kind of impact do you think these changes will have on companies like KO, PEP, MCD, etc? I have a small position in KO and am on the fence about the others. I have similar concerns about XOM and CVX just because I'm not sure where our energy will be coming from in 40 or so years. I know you're not a psychic, but what are your thoughts?

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