Warren Buffett's Historical Investments (Part 3)

Warren Buffett's Historical Investments (Part 3)

Coca-Cola Co.: Coca-Cola has the mother lode of durable competitive advantages. Coke is the world's top soft-drink company. It sells more than 230 brands of beverages, including coffees, juices, and teas. It commands 50% of the global soft-drink market and 2% of the world's daily fluid consumption. This is one of the biggest bets that Buffett ever made, and it's also one of his most profitable. Buy this one during a recession and panic sell-off. Under no circumstances should you ever pay more than 30 times earnings for it. Expect Buffett to be buying more anytime it drops to a PE below 25.

Price bought: During a recession and panic sell-off



Cox Communications: Provides cable TV service to 6 million customers and digital TV to 350,000 subscribers. Media conglomerate Cox Enterprises contorls 68% of Cox Communications' stock. It also offers Internet access and local and long-distance phone service. It is the monopoly cable TV provider in most of the markets it services. Think of it as 6.3 million people who are addicted to channel surfing sending it checks each month. Cox's net profit margin was 23% in 2000. Compare that to Ford Motors's net profit margin of 1% and you can see why Buffett loves the cable TV business and abhors the automobile business. This is a Buffett Foundation holding.



The Walt Disney Company: Buffett first bought into Walt Disney Company in 1966, when it was selling for $53 a share, which meant that the market was valuing the entire business for $80 million, less than Snow White and the other cartoons were worth. Included in the deal you also got Disneyland. Buffett bought $5 million worth and sold it a year later for $6 million.


Price bought: Bought $5 million at $53 a share (1966, when Disney was undervalued)
Price sold: Sold for $6 million (1967)
(If this 5% stake were kept, it is now worth $1 billion)



He says that if he had kept that 5% stake it would now be worth more than $1 billion (which equates to a 19% compounding annual rate of return for the 30-year period). Lessons like this taught Buffett that holding companies with a durable competitive advantage for the long term was the easiest way to become superrich. He later acquired 21.5 million shares of Disney when it acquired Capital Cities in 1995. At the top of the bullmarket between 1998 and 2000, he was rumored to be selling Disney directly in the market, and also, he sold it indirectly in the General Reinsurance deal.


Price bought: Acquired in 1995 when Disney acquired Capital Cities.
Price sold: Rumored to be selling at the top of bullmarket (1998 - 2000)



Disney is the second-largest media conglomerate in the world. It owns the ABC television network, TV stations, radio stations, theme park, movie studios, and of course, the monarch of the Magic Kingdom - Mickey Mouse. Wait for a recession to buy this one and then hold on for the ride of your life.



Exxon Corporation: In the early eighties the Fed jacked up interest rates to kill inflation. It also killed the economy and the stock market. Lots of stocks were selling cheap ut Buffett placed his bet on Exxon, the largest and best run of the oil companies, on the theory that no matter what happened to the economy, individuals and businesses would keep guzzling oil. The high interest rates kept Exxon's stock down to $44 a share, against earnings of $6.77, which equates to an initial return of 15.2%. It has been growing its per share earnings at an annual rate of 6.7% and had been buying back its own shares. Buffett paid approximately 6.5 times earnings. By 1987 it was trading at $87 a share, which would have given him an annual compounding rate of return of approximately 25%.


Price bought: $44 a share (at 6.5x earnings, in early 80s)
Earnings: $6.77 a share
Initial return: 15.2%
Per share earnings annual growth rate: 6.7%
Price at 1987: $87 a share



Related topics:
Warren Buffett's Historical Investments (Part 1)
Warren Buffett's Historical Investments (Part 2)
Warren Buffett's Historical Investments (Part 3)
Warren Buffett's Historical Investments (Part 4)
Warren Buffett's Historical Investments (Part 5)
Warren Buffett's Historical Investments (Part 6)
Warren Buffett's Historical Investments (Part 7)
Warren Buffett's Historical Investments (Part 8)
Warren Buffett's Historical Investments (Part 9)