Warren Buffett’s 1993 Lesson On Coca-Cola Stock

In his 1993 letter to shareholders of Berkshire Hathaway, Warren Buffett provided an interesting historical aside about Coca-Cola’s long-term performance:

“Let me add a lesson from history: Coke went public in 1919 at $40 per share. By the end of 1920, the market, coldly re-evaluating Coke’s future prospects, had battered the stock down by more than 50%, to $19.50. At year-end 1993, that single share, with dividends reinvested, was worth more than $2.1 million. As Ben Graham said, ‘In the short-run, the market is a voting machine—reflecting a voter-registration test that requires only money, not intelligence or emotional stability—but in the long-run, the market is a weighing machine.”

For those of you who are curious, that share is now worth either slightly below $10 million or slightly above $10 million depending on the latest market fluctuations.

What I picked up from Buffett when I first came across this passage is … Read the rest of this article!

IBM’s Acquisition of Red Hat & The Modern Tech Stock

From 1911 through 1991, American tech stocks delivered returns of 8.3% annualized, almost two percentage points below what a general basket of large-cap American stocks produced over the same time frame. And much of that was driven by IBM. If IBM were removed from this historical measuring period, the tech stocks would have only produced 5.2%.

Why? Because of the immense wipeout risk. Unlike a candy bar manufactured by Mars, Inc. or Hershey, which can be slightly tweaked and repackage and sold for profit over and over again, the typical life cycle of a technology company has been that (1) a new product is introduced; (2) it saturates a market, creating an avalanche of wealth within a few short years; and (3) the product is replaced by the better mousetrap, leaving sales of the former product to wither due to obsolescence as bankruptcy or some sort of dulitive event occurs.… Read the rest of this article!