Warren Buffett bought more than $1 billion in shares of the Coca-Cola Company (KO) in 1988, an amount that was then equivalent to 6.2% of the company. The purchase made it the single largest position in Buffett's Berkshire Hathaway Inc. (BRK.A, BRK.B) portfolio at the time.
Coca-Cola stock remains one of Berkshire Hathaway's biggest holdings today. According to the firm's June 30, 2023, 13F filing, the holding company owned a 9.2% stake worth more than $23 billion in the company. Its 400 million shares also make it Coca-Cola's largest single shareholder.
But why did the Berkshire Hathaway chair make the purchase at that time, when the stock was still reeling after the 1987 market crash? And why has he held onto shares of the soft drink company for so long?
Key Takeaways
- Coca-Cola stock was hit hard by the 1987 stock market crash, along with many others.
- Buffett & Co. determined that Coca-Cola was a good company, had great value, could withstand competition, and was poised to recover.
- The Coca-Cola stake marked a significant change in Buffett's investing philosophy.
- Today, Coca-Cola is Berkshire's fourth-biggest holding by market value.
Warren Buffett: InvestoTrivia Part 1
Good Stocks Sunk by the Crash
The stock market crash of 1987 created some attractive opportunities for investors, as all stocks were sold off with little regard to their fundamentals.
Coca-Cola was an example. It was (and is) the dominant company in the beverage industry. As of 2023, it sells more than 200 brands of beverages, from Costa Coffee to vitaminwater, in over 200 countries.
In marketing parlance, Coca-Cola's iconic name and global reach created a "moat" around its core soft drink product. A successful brand builds the name recognition, the distributor network, and the retail relationships that protect it from encroachment by competitors.
Warren Buffett understood that no competitor was going to appear and take away Coca-Cola's market share. On the contrary, the company has steadily absorbed potential competitors over the years and expanded into new trends through purchase such as Ayataka green tea and Dasani water.
An Evolving Investing Philosophy
The Coca-Cola purchase suggested that Buffett's investing philosophy had evolved from Benjamin Graham and a focus on finding companies that had a value exceeding their market prices.
This adjustment was necessary to account for the growing size of Buffett's portfolio, which made it more difficult to take advantage of market inefficiencies. Its sheer size also hindered any attempts at active management and reduced the number of opportunities he could consider that would have a meaningful impact on the portfolio's performance.
Notably, the influence of Charlie Munger, the vice-chair of Berkshire Hathaway, and his philosophy of ethical investing also played a part.
Coca-Cola heralded a change in Buffett's value investing approach, which included "buying bad companies at great prices" to an emphasis on "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.
Coca-Cola is Berkshire Hathaway's fourth-largest holding, more than 30 years after it was first added to the portfolio.
Why Buffett Likes Coca-Cola
Although many people may have been skeptical when Buffett first began buying Coca-Cola stock in 1988, shortly after the stock market crash of 1987, Buffett himself defended the buy, saying his favorite holding period is "forever." Here's why he likes the stock:
- Strong brand: Coca-Cola was, and remains, one of the most recognizable global brands. Its products are sold in more than 200 countries around the world, and it's the No. 1 producer of non-alcoholic, ready-to-drink beverages.
- Consistent growth: Coca-Cola's market cap has reached $252 billion. In 1988, when Buffett first started buying shares, the company's market cap was $16 billion.
- Growing dividends: Coca-Cola pays regular quarterly dividends, shelling out $0.46 per share as of September 2023.
Berkshire Hathaway's Coca-Cola Transactions
Buffett first began buying more than 23 million shares of Coca-Cola in 1988 at $2.73 per share (split-adjusted price). The stock split 2-to-1 four times after that; he increased his 6.3% stake to 7.8% by 1994 and more than 9% today.
The investing giant has held on to Coca-Cola stock for decades, with more than 400 million shares on his books by 2023.
Buffett's Top 10 Holdings
Warren Buffett continues to be an investor in Coca-Cola today. The Berkshire Hathaway stock investment portfolio'stop 10 stocks—by market value—based on an SEC filing in June 2023 are as follows:
- Apple (AAPL), $163.1 billion
- Bank of America (BAC), $29.3 billion
- American Express (AXP), $23.9 billion
- Coca-Cola (KO), $23.3 billion
- Chevron (CVX), $20.6 billion
- Occidental Petroleum (OXY), $14.6 billion
- Kraft Heinz (KHC), $10.7billion
- Moody's (MCO), $8.4 billion
- Mitsubishi Corp. (MSBHF), $6.0 billion
- Mitsui & Co. (MITSF), $4.7 billion
What Is Berkshire Hathaway?
Berkshire Hathaway is a holding company run by value investor Warren Buffett and headquartered in Omaha, Nebraska. Insurance subsidiaries make up a large part of Berkshire's portfolio, but the company also owns a variety of other private businesses and holds significant minority interests in public companies such as Apple, Bank of America, Chevron, and Coca-Cola.
What Is Warren Buffett's Investment Philosophy?
Legendary investor Warren Buffettis famous for following Benjamin Graham's school of value investing, which looks for assets whose low prices do not account for their intrinsic worth. Buffett takes a holistic view of companies rather than focusing on stock market trends, considering factors such as company performance, debt, and profit margins.
What Happened to the Stock Markets in 1987?
In late October 1987, U.S. stock prices suffered a rapid and severe decline, with effects rippling out to major stock markets around the world. On Oct. 19, 1987—known asBlack Monday—the Dow Jones Industrial Average suffered what was then its largest percentage drop in one day. Speculation continues surrounding the specific causes of the crash.
The Bottom Line
Warren Buffett's Berkshire Hathaway made a significant investment in shares of beverage giant Coca-Cola in 1988, when the stock's price was depressed following a market crash. Buffett and others at Berkshire recognized Coca-Cola's market advantages, believing that the company was poised to recover. The investment paid off, and Coca-Cola remains one of Berkshire's top holdings.
