Since 1995, the S&P 500 has created wealth at a rate of 8.88% per year. Coca-Cola, meanwhile, has compounded at a rate of 7.53%. A lot of that underperformance is due to the fact that Coca-Cola was absurdly priced, giving investors a starting earnings yield in the 3% range if they timed it well that year, but for a moment—let’s pretend that wasn’t the case.
Let’s just say that both the S&P 500 and Coca-Cola were fairly priced in 1995, and the S&P 500 won by 1.3% per year. Why on earth would someone hold Coca-Cola stock if it was having trouble matching a diversified collection of American enterprises that you could easily … Read the rest of this article!