Should You Dollar Cost Average With Coca-Cola Stock?

One of the perks of dollar-cost averaging is that it comes reasonably close to ensuring that your investment will generate returns that correspond to the actual growth of the company that you choose to invest in. The protection of a dollar-cost averaging strategy is that it protects you from the consequences of accidentally investing at a market high.

Take something like Coca-Cola. From 1997 to 1999, the company traded at obscene, impossible to justify valuations. It peaked in 1998 when Coca-Cola regularly traded at over 50x earnings. Someone who purchased $54,000 worth of the stock in 1998 wouldn’t have done all that well, turning his money $78,000 today for a return of 2.40% annually. However, you would be lucky that you made money at all, because you would have been paying $35 or so for a share of stock that was only pumping out $0.71 in annual profit. Those shares were worth $15 per share, yet people were paying a premium of over twice what the shares were worth. You can’t get rich with blue-chips by paying doubled (and then some) valuations like that.

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