We all know the story of
The Coca-Cola Co.—$162 billion market cap, $48 billion sales, 16 brands having
a billion dollar plus valuation, $9.1 billion returned to shareholders in 2012
and 51 years of an uninterrupted dividend payment track record. Coca Cola was
established in 1892 by Asa Griggs Candler to market drinks based on Formula X
bought from a pharmacist John Pemberton. The fizzy drinks company has been
sweetening the portfolios of hard-nosed equity investors for decades. In fact,
it is one of the stocks that has made Warren Buffet a legendary investor.
Another early investor into Coke, Mort Bates, would be often asked the best
time to buy shares in Coca-Cola? His reply was a standard: “Any time you got
money.” Luckily for him, anybody who followed his advise has had no reason to
regret the decision.
But the most interesting
story around the Coca-Cola stock is around a small town banker called Mark
(Pat) Monroe who lived in the tiny town of Quincy, Florida. Around 7,000 people
and 20 miles west of Tallahassee in Florida—the town was famous for tobacco and
other agricultural products. Ranked as one of the wealthiest (in terms of per
capita income) towns in the US, it also had more number of millionaires (per
capita) than any other town in the US. It has remained remarkably immune from
recessions and depressions over last many decades. The success of Quincy can be
attributed to banker Pat Monroe who worked in Quincy in the 20s and 30s and his
amazing push for equity as an investment destination.
The story goes like
this: Coca-Cola came out with an initial public offering (IPO) in 1919 at $40
per share. Post listing, a conflict with the sugar industry resulted in its
stock price correcting to Rs.19 per share. Monroe was the banker to the tobacco farmers, who
would turn to him for investment advice especially after a good harvest. Back
then bankers were a part of family in small towns.
Monroe watched people
guzzling Coca-Cola more and more, year after year. Another thing he noticed was
that even during a recession, people could not stop drinking Coke. He saw the
Coke becoming a powerful brand over time and started recommending Coke shares
to anyone who sought his investment advise. He’d call people to persuade them
to invest and would even underwrite bank loans for his responsible depositors,
backed by Coca-Cola stock. He pushed Coca-Cola stock to farmers and widows—an
unlikely class of an equity investor. Monroe’s business skills in convincing
others to buy assets that produced cash irrespective of short-term market
fluctuations, not only changed lives it saved the farm town during the Great
Depression and every single recession thereafter as dividend from Coca-Cola
shares never stopped.
When crops would fail,
it was the dividend income from Coca-Cola or sale proceeds from the Coca-Cola
shares that kept Quincy houses running. When the national economy collapsed, it
was the Coca-Cola cash that allowed people to stay in their homes. When times
were good, and Coke was cheap, more shares were purchased. As per one count at
least 67 appropriately dubbed “Coca-Cola millionaires” amassed significant
fortunes before passing these on to children and grandchildren. One share of
Coca-Cola bought at Rs.40 in the IPO of 1919 is worth today more than Rs.10 million (including
dividend reinvestment) and would be yielding $270,000 in pre-tax cash dividends
to the owner by sending a check for $67,500 every quarter. That will be about 6
times plus what an average American earns.
The story does not end
here. The Coke millionaires were public spirited people who spent money to
provide education, better infrastructure and overall development to the people
of Quincy. They were a remarkable group of people who decided to ignore stock
market volatility and focus on the one metric that matters: profits generated
by the business, and to a lesser extent, the percentage of that profit that was
distributed each year in the form of dividends. As long as profits and
dividends went up each year, and there was no change in the competitive
position of the underlying business, shares were bought. They were never sold.
This is what people mean when they say it only takes one good idea in life to
get rich.
In India we sorely miss
an equivalent of Pat Monroe. We have companies such as Wipro Ltd which has
generated returns better than Coca-Cola. It is difficult to find an original
holder of Wipro other than promoters in the country. It is difficult to hear
about how Rs.10,000 invested in Wipro
pre-independence would have grown to couple of hundred crore and how its
dividend income alone will be a multiple times the original investment. It is
difficult to hear about such stories in the daily commentary of buy above Rs.101 and sell below Rs.99. The cult of
long-term equity will be built on such stories of wealth creation. Today when
foreign institutional investor ownership of many of the bluechip companies of
India is a multiple times that of retail owners, it is important to spread the
knowledge of long-term power of equity investment. Tomorrow might become too
late for us to buy back the ownership of bluechip Indian companies.
An article published in livemint by Nilesh Shah - Director, Axis Direct
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