A noteworthy investing passage from page 155 of Charles Alexander’s book “Ty Cobb”:
“In the 1920s, Cobb’s Coca-Cola stock would prove particularly renumerative. Since his first commercial endorsements for the soft drink in 1908, Cobb had been friends with Robert W. Woodruff, who in 1923 succeeded his father as president of the Atlanta based-business. Woodruff and Cobb were frequent hunting companions, especially at the Woodruff family’s plantation in southwestern Georgia. Many people later regretted not getting in on the ground floor with Coca-Cola, as Cobb had done; but maybe none were sorrier than three sports writers whom Cobb, relaxing in New York on the evening after he was named Tigers manager, futilely urged to buy Coca-Cola at a little more than twenty dollars per share. Within a few years that stock was worth nine times as much. Cobb himself continued to buy into Coca-Cola, whose profits and operations expanded spectacularly throughout the 1920s, and eventually came to own 20,000 shares.”
With reinvested dividends and the cosmetic change of stock splits, that 20,000 share position that Ty Cobb acquired would have ballooned into 146 million shares today. Considering that Coca-Cola has 4.3 billion shares outstanding, this means that Ty Cobb’s estate would have owned 3.39% of the business. Visit a McDonald’s during the lunch rush, and the profits from two or three customers getting Coke refills would have gone straight to the legacy holders of the Ty Cobb investment.
By contrast, Warren Buffett owns 18.75% of Berkshire Hathaway, which in turn, owns 400,000,000 shares of Coca-Cola. This means that Warren Buffett’s look-through economic ownership of Coca-Cola is around 75,000,000, or about half of what the Cobb position would have grown to today.
You know what’s crazy? Buffett sank $1.3 billion into Coca-Cola stock from 1987 through 1993. In the 1920s and 1930s, Ty Cobb sank less than a million dollars in aggregate into KO stock. And yet, his position would have doubled Buffett’s over the coming decades. Amount of capital, compounding rate, and time are the three elements that control your final wealth amount. Finding the businesses growing at a 10-12% rate and giving it a long runway to compound is your best bet to offset any deficiencies in the initial amount of money you have to invest.
Originally posted 2016-12-04 10:00:30.