Warren Buffet raised a can of Coke and said that it is easy to understand business of the soft drink, while he was giving a MBA talk at University of Florida. It is a simple business. Not easy, but simple. A business needs to have a moat around it and a wonderful and valuable castle in the center. And a person running the business needs to be honest, hard working and capable.
The moat can be low cost company like in Geico – the auto insurance company. People have to buy auto insurance. People can’t buy 20 policies, but they have to buy one since they usually have one automobile at home. People have to buy it based on service and cost. People assume that the service at any auto insurance company is the same so all you can do is compete on cost. Being the lowest cost producer is the moat.
30 years ago, Eastman Kodak’s moat was just as wide as Cokes moat. Kodak was the go to brand in cameras. Everyone had the vision in their head that Kodak was the best. But Kodak let Fuji into their castle due to an error where Fuji advertised via the Olympics instead of Kodak. Fuji eventually was viewed to be at parity with Kodak eventually.
Coke’s moat is wider than it was 30 years ago. Every day that Coke enters a new marketplace, the moat gets a little bigger. You don’t see it every day but over the long term you can see it.
Moats can exist due to things like:
1) Service
2) Quality of Product
3) Cost
4) Patents
5) Real Estate location
6) It needs to be obvious that people can not easily enter the market.
He furthered by explaining the business of Coke:
The one thing people don’t understand about all Colas is that it doesn’t have any taste memory. You can drink one every hour and you don’t get sick of it after awhile. You can not say that about orange soda, cream soda root beer, etc. People around the world can become heavy users. You can not do that with other products. The average person in the US drinks 64 ounces of liquid a day. You can have all 64 ounces by drinking Coke (or any Cola). With any other product, you will get sick of it after a while. Because of this, over the world, sales of Coke will increase per capita over time.
Warren Buffet values and Conscious Incompetency:
The most valuable teaching from Ben Graham is that you are not buying a stock, you are buying part ownership in a business. It is not complicated.
No one can value an internet stock. People only value internet stocks because it is exciting, not because they can. People investing in internet stocks were not doing so because they wanted to earn a return at an appropriate rate but because they thought it was exciting. For emotional reasons rather than logical. 1998 was the beginning of the internet stock bubble, known as the dot-com bubble or tech bubble.
To fully understand Warren Buffet’s way of investing, one can refer to The Warren Buffet Way or The Winning Investment Habits of Warrent Buffet & George Soros.
P/S: Currently Berkshire Harthaway is holding 200 millions shares of The Coke Cola Company, the second largest shareholding followed by Wells Fargo’s 302 millions shares.
