buffett: Warren Buffett’s firm reports $2 7 billion loss on investment drop

October 4, 2022
Category: Forex Trading

Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary on Berkshire Hathaway’s website stating why he would not divest over its connection with the Sudanese civil war that caused Harvard to divest. He sold this stake soon afterwards, sparing him the billions of dollars he would have lost had he held on to the company in the midst of the steep drop in oil prices beginning in the summer of 2008. Buffett favors the inheritance tax, saying that repealing it would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”. In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy. He also stated that the markets and the economy will likely be unpredictable well into the post-pandemic recovery period, even with the Biden administration and the United States Federal Reserve having a plan in place. He said the unpredictability and the effects of COVID-19 are far from over.

By the end of 1989, he had purchased 23.35 million shares worth $1.8 billion. Berkshire first bought Coke stock from 1988 to 1989, scooping up over 23 million shares. When Buffett first started buying in the first quarter, many investors were still skittish from the Black Monday crash in October 1987. Buffett going big on the stock was considered risky, especially because it was not a typical Berkshire investment. The Press of Atlantic City became Berkshire’s 30th daily newspaper, following other purchases such as Virginia, U.S.’ Roanoke Times and The Tulsa World in Oklahoma, U.S. In the 1989 letter, Buffett elaborated on his decision to invest such a high percentage of shareholders’ capital in Coca-Cola.

Revenues for 1987 were $7,658 million, with an operating income of $1,323 million. Interest expense for the year was $207 million, and shares outstanding was 377 million. Using a DCF model, let’s look at what price might have made sense in 1988 for us to invest.

By that measure, Berkshire’s operating earnings jumped 20% to $7.76 billion, or $5,293.83 per Class A share. Berkshire Hathaway reported a quarterly loss Saturday of $2.7 billion, or $1,832 per Class A share. That’s down from a $10.3 billion profit, or $6,882 per Class A share, a year ago when the stock market was soaring. In the second warren buffett coca cola investment quarter of this year, Berkshire reported a $44 billion loss. Back in 2004, Buffett told investors that buybacks are “probably the best use of cash” when a company’s stock is undervalued. Berkshire didn’t launch its own buyback plan until 2011, but it frequently invests in companies that aggressively repurchase their own shares.

warren buffett coca cola investment

Coupled with a huge and extremely efficient network of distribution, a superb balance sheet, comfortable cash flow, and strong management, Coca-Cola seems to be as close to a surefire investment as one can find. Buffett has been a supporter of index funds for people who are either not interested in managing their own money or don’t have the time. Buffett is skeptical that active management can outperform the market in the long run, and has advised both individual and institutional investors to move their money to low-cost index funds that track broad, diversified stock market indices. By 2017, the index fund was outperforming every hedge fund that made the bet against Buffett. Buffett’s interest in the stock market and investing dated to schoolboy days he spent in the customers’ lounge of a regional stock brokerage near his father’s own brokerage office.

I think those expansions of operating margins were the key observation because that indicates operating leverage and strength. All of which leads to better efficiency in the use of Coke’s assets, which drives more revenues. It is all a virtuous circle that leads to growth for Coke and any company. We will assume the company grows revenues at 6.6% and fall to the risk-free rate of 6.35% in the model. We will also assume that margins will grow at 22% over the first five years before settling to a more industry average margin of 15%. The tax rate will remain constant throughout the valuation, as will the discount rate.

In November 2011, it was announced that over the course of the previous eight months, Buffett had bought 64 million shares of International Business Machine Corp stock, worth around $11 billion. This unanticipated investment raised his stake in the company to around 5.5 https://1investing.in/ percent—the largest stake in IBM alongside that of State Street Global Advisors. Buffett had said on numerous prior occasions that he would not invest in technology because he did not fully understand it, so the move came as a surprise to many investors and observers.

A stacked product lineup is pushing revenue and earnings higher

This is a crash course of how to apply, a checklist of documents, plus HDB vs bank loans, and fixed vs floating rates. The 8 Main Types of Investment Risk “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to… – 3 Important Considerations Investors fortunate enough to see the share price of an investment increase up to their calculated intrinsic value are then faced with the hard dilemma… As always, thank you for taking the time to read today’s post, and I hope you find some value in your investing journey. If I can be of any further assistance, please don’t hesitate to reach out. A note before I go, if you want to learn more about Buffett’s investments, check out the amazing book, Inside the Investments of Warren Buffett by Yefei Lu; you won’t regret it.

  • The robust U.S. dollar led to an 8% headwind on the company’s net revenue for the quarter.
  • That price-to-earnings (P/E) ratio didn’t make it a deep value stock, but Buffett believed it was undervalued relative to its growth potential.
  • On Berkshire’s purchase price of $16.3b, this represents a dividend yield of 2.5% p.a..
  • About USD 2 billion of that went to Occidental purchases that have already been disclosed.

Buffett faults the incentives in the United States medical industry, that payers reimburse doctors for procedures (fee-for-service) leading to unnecessary care , instead of paying for results. He cited Atul Gawande’s 2009 article in the New Yorker as a useful consideration of US health care, with its documentation of unwarranted variation in Medicare expenditures between McAllen, Texas and El Paso, Texas. Buffett raised the problem of lobbying by the medical industry, saying that they are very focused on maintaining their income.

This didn’t work, it only created many more headaches and less efficient returns than expected, so he cut his losses quickly. Paraphrasing Munger, he argued that ideally, there should never be another business that uses the name “Coca” or “Cola” in their branding. The second point of avoidance Charlie mentioned was that the Company “must avoid making any huge and sudden changes in the flavour”. Even if a competitor comes up with a better flavour, changing to this new flavour would do the Company little good. I believe Buffett and Munger recognised that Coca-Cola is the largest soda company with the strongest brand in terms of its associations, availability and deals with different schools, theme parks etc.

The four analysts surveyed by FactSet expected Berkshire to report operating earnings per Class A share of $4,205.82 on average. Therefore, Berkshire’s 400 million shares of the company now net a whopping $704 million in dividend payments each year. The company’s iconic brand, the stock’s reasonable valuation, its dividends, and its buybacks all likely impressed Buffett. During this chaos, Buffett was contemplating his investment in Coca-cola. He had determined, rightfully, that the company had a tremendous moat and could raise its prices incrementally without hurting the brand. But that is where the genius of Buffett and Munger started to appear because they both understood that a company that can grow over decades because of the power of compounding and reinvestment strength.

Because of the success of that campaign, Pepsi was eventually able to steal some market share from Coke. And try to assess it on the idea of why he bought Coke and how we can learn from those ideas. Buffett loves Coke; it is obvious if you observe him at his annual Shareholder meetings, where Coke has a prominent place on his table. Warren Buffett Buys American Express American Express was one of the turning point investments for Warren Buffett. It might be one of the most valuable lessons of the book, and that’s that you don’t have to reinvent the wheel when it comes to investing. Goizueta tried buying Columbia Pictures to get synergy and prestige for Coca Cola’s advertising.

Did Coca-Cola have the capacity to expand globally?

In 2013, Berkshire teamed up with 3G Capital to acquire Heinz for $23 billion. But Buffett hasn’t given up; Berkshire still owns a roughly 26.6% stake in the company at the end of the second quarter. Coca-Cola has raised its dividend annually for 60 straight years, making it a Dividend King. In 1994, Buffett bought more shares of Coca-Cola and at present holds 400 million shares in the company. Coca-Cola also has a steady cash flow and pays out its profits as dividend generously.

One of my favorite and Buffett’s ratios are ROCE, which helps us see how efficiently the company compounds its capital. To break this down, we need to look closely at the balance sheet to investigate Coke’s capital investments. In 1987, the last annual report available to Buffett before pulling the trigger on his investment, Roberto Goizueta, the company’s CEO and chairman, stated in the annual report that 95% of the company’s operating income came from soft drinks. Goizueta described the company’s plan to repurchase 10% of the total shares outstanding over a three-year period. In addition, he described his plan to “continue to explore new and innovative methods of using The Coca-Cola Company’s financial resources to increase shareholder wealth.” Here is another quote from the 1987 annual report. Coca-Cola heralded a change in Buffett’s approach from “buying bad companies at great prices” to “buying great companies at good prices.” By the end of 2020, Buffett’s continuing investments in Coca-Cola had returned 1,550%, not including dividends.

That price-to-earnings (P/E) ratio didn’t make it a deep value stock, but Buffett believed it was undervalued relative to its growth potential. After all, Coca-Cola was already an evergreen brand that had dominated the beverage market for decades before Berkshire bought its first shares. As we can see from above, the company was doing a great job of growing shareholders’ returns, but let’s look at the reinvestment efficiency of Coke in 1987.

Coca-Cola has raised its dividend for 60 years consecutively, which is one of the best track records on the market. It is about as solid as you can get for a dividend, and it yields 3.15% at the current price, right around where it usually falls. Buffett’s biggest stock investments this year included buying roughly $12 billion worth of Occidental Petroleum stock and about $20 billion worth of Chevron shares.


Warren studied there for two years and joined the Alpha Sigma Phi fraternity. He then transferred to the University of Nebraska where at 19, he graduated with a Bachelor of Science in business administration. After being rejected by Harvard Business School, Buffett enrolled at Columbia Business School of Columbia University upon learning that Benjamin Graham taught there. Investmentanalysis.co is owned by Frederik Müller, a certified investment analyst.

warren buffett coca cola investment

Recognizing that there are going to be periods of economic uncertainty, periods of slow economic growth, and periods of high inflation should inform your investing decisions even when stock prices are flying high. On December 16, 2015, Buffett endorsed Democratic candidate Hillary Clinton for president. On August 1, 2016, Buffett challenged Donald Trump to release his tax returns. On October 10, 2016, after a reference to him in the second presidential debate, Buffett released his own tax return. He said he had paid $1.85 million in federal income taxes in 2015 on an adjusted gross income of $11.6 million, meaning he had an effective federal income tax rate of around 16 percent. Buffett also said he had made more than $2.8 billion worth of donations last year.

Warren Buffett’s firm reports $2.7B loss on investment drop

In 1987, Berkshire Hathaway purchased a 12% stake in Salomon Inc., making it the largest shareholder and Buffett a director. A rogue trader, Paul Mozer, was submitting bids in excess of what was allowed by Treasury rules. When this was brought to Gutfreund’s attention, he did not immediately suspend the rogue trader. Since its founding in 1886 in Atlanta, Georgia, Coca-Cola has emerged as the most dominant beverage company in the world. Over the last century, it expanded via acquisitions and new product launches from its eponymous Coca-Cola brand to more than 200 brands in 200-plus countries and territories. These well-known brands include the bottled water brand Dasani, the sports drink brand Powerade, and the juice brand Minute Maid.

This Book Reveals the Secret Behind Warren Buffett’s Coca Cola Investment

As a result, the global bottlers end up a satisfied partners of The Coca-Cola Company. Coca-Cola also allows fountain operators and restaurants to charge whatever they like. Because of this, there are restaurant owners making a huge margin on a product that they know they can sell and sell in huge volumes. This existing model allows the brand to spread to the point where Coca-Cola products are essentially everywhere.