Chapter 21 18 Secrets in the Sanctuary

In the fall of 1980, Coca-Cola discovered that someone was buying its stock.Chairman Robert. C. Goiziata and General Manager Donald.Keo was very curious about who this person was.Now that the stock price has fallen 25% from its pre-crash height, the mysterious visitor is sickly swallowing stocks.When Kayo discovered that a broker in the Midwest was buying, he suddenly remembered his old neighbors, so he said to Goiziata, "Probably Warren Buffett." Goiziata Urge him to make a quick call. "Hey, Warren, how are you?" Keo said. "You don't happen to be buying Coca-Cola, do you?"

"Coincidentally, I am buying." Buffett replied. He asked Keo to keep quiet until he made the matter public, while he continued to buy.By the spring of the following year, Buffett had bought 1.02 billion, or 7%, of Coca-Cola's stock at an average price of $10.96. When word got out, he dodged questions by using his love of red Coke as an excuse.He jokingly said that this investment is "the last investment for a feast".His words are difficult to understand: It's like when you marry a girl, do you want her eyes or her personality?That is her indivisible whole. An analyst on Wall Street said that this is "a very expensive stock", but in only three years, Buffett's bet on Coca-Cola has risen to 3.75 billion US dollars-almost all his assets when he started investing in Coca-Cola. value.

How has Coca-Cola changed in the past three years?Its earnings per share rose 64%—a big profit, but not nearly as fast as the stock price tripled.The main reason for this change is that Wall Street's understanding of the industry has undergone major changes.Investors suddenly discovered that Coke was so popular that it was found almost everywhere on earth.The average American drinks 296 bottles of Coke a year, while authentic foreigners drink 39 bottles.Coca-Cola is eager to fill that gap, rapidly expanding in Eastern Europe, France, China and across the Pacific.Its profits in Japan have exceeded those at home.The market potential in places like Indonesia, where the annual per capita consumption is only 4 bottles of Coke, is also huge."When I think about Indonesia, a tropical country of 180 million people with an average age of 18, and its Muslims who forbid alcohol, I think it's like seeing heaven," Keo said. By 1991, Wall Street This is also seen in its share price.

What drove Buffett to become Coke's largest shareholder before its big growth?What drove him to put so much more money in Coca-Cola than before?Was it just a lucky dart?Or is it, as Buffett himself insists, due to his penetrating ability to capture the essence of things? Many investments before him were made based on a single event or value seen on a balance sheet. The Washington Post sold for just a little more than it could afford bankruptcy; GEICO got next to nothing, and no one believed it could get out of the woods.Unlike Coca-Cola, Buffett cannot see its value from its balance sheet.He can't see it but he can figure it out.

Some people may ask how he judges the value of stocks.Buffett likens it to bonds.The value of a bond lies in converting its future returns into present returns.The same is true for the calculation of stock value, which is equal to the change in the forecast funds per share, the difference is that investors must judge the details by themselves: If you buy a bond, you have a good idea of ​​what the future will look like, if a good bond -- a U.S. government bond, let's say it has a 9% interest rate, you probably know what the coupon will be like in 30 years... If you buy stock in a company, it also has a coupon, the only difference is that the amount is not printed.It's up to you to figure out or print an amount on it.

Buffett uses this value to find stocks whose value exceeds their price.His buying guide can be summed up quickly: .Ignore the general economic trends and forecasts, and ignore people's predictions about stock price changes.Just focus on the long-term value of the business - it can be seen in the coupon numbers on the street. .Always only operate the stocks that you can afford.For Buffett, it is a company with privileged customers.The general specification is the same: if you're new to the business -- whether it's a newspaper or a software company -- you can't value stocks properly. .Look for companies that are as serious about their shareholders' money as their own. .Research the prospects of a stock's competitors in great detail.Look at first-hand materials rather than analysts' summaries.

Buffett said to trust your eyes.But there is no need to analyze too finely.A basketball coach doesn't look at 6'1" or 6' when he picks players, he only picks guys over 7'. .Don't bother with stocks that most people can't force.Merrill Lynch has a view on every stock, Buffett does not.And once investors take a fancy to a certain stock, they will buy it without hesitation, and buy it by tons. That's what Buffett does.After purchasing Metropolis, he hadn't bought a share of stock (excluding arbitrage and secret small purchases) for three full years.But when he got his eye on Coca-Cola, he took out about a quarter of Berkshire's market value.

The question is why Coca-Cola's stock has been cheap for several years, and it has no new developments in the world beverage market.Robert from Georgia.Windsorp.Woolf has been determined to make Coca-Cola everywhere in the world since he became the manager of Coca-Cola in 1923. It entered China for the first time in 1928.During World War II, the company persuaded the U.S. government to build 95 bottling plants overseas, nominally to boost morale rather than specifically to expand markets. In 1949, the factory in Bangkok opened under the auspices of 9 eminent monks. In 1956, a salesman of the company was determined to find a person who did not know Coca-Cola.He traveled 150 miles deep into the interior of Peru, and finally came across an Indian woman in the jungle.The salesman introduced his purpose through an interpreter, so the woman took a bottle of Coke from his bag.

Buffett started drinking this wonderful drink in 1935. "Indeed," he wrote to shareholders: My family's grocer, Buffett & Sons, began importing Coca-Cola at 25 cents a bottle in 1936 and retailed it at 30 cents a bottle.In this kind of high-yield short-term trading, I found that Coke is very attractive to customers and there are many business opportunities.From then until the 52 years that Coca-Cola became popular in the world, I found that it has always had this characteristic.But during that time I carefully avoided buying its stock, preferring to invest the company's money in the city subway company, the windmill factory, the anthracite coal factory, the textile industry . . . and so on.

Coca-Cola is a "simple" business, with the ability to raise prices and a "moat" that Buffett likes.By the 1970s, Buffett's tastes had shifted from "anthracite" to privileged companies like See's.The Coca-Cola Company's main business is not to sell Coke, but to provide concentrated syrup in bottles and soda fountains.Such a business, unlike bottling, requires very little capital.And its name is also very unique, especially in foreign countries, its sales ratio with Pepsi is 4:1. In Buffett's words, this brand is a toll bridge. But despite Coke's worldwide popularity in the 1970s, the company ran aground.The marketing work is in the charge of overseas filling factories, but not all of them are doing well.And the cultural tendencies of certain countries have also delayed the popularization of Coke. For example, anti-American sentiment in France can only make wine popular.To make matters worse, President J. Bow.Austin didn't know what to do with the extra cash.By the mid-1970s, he had met 3

million dollars in financial difficulties.The handsome redheaded Olympic speedboater who graduated from Harvard invested his money in a variety of industries that had nothing to do with Coke: water purification, liquor, shrimp farming, plastics, whey drinks, and fruits and vegetables.Buffett sees these moves as a waste of precious money.In fact, Coke's stock yield in the 1970s was a wretched 1%. When Goiziata, a Cuban-born chemical engineer, took over Coca-Cola in 1981, he had the grinning salesman Keo as his second-in-command.Goiziata's first thought after taking office was to diversify. In 1982 the company branched out into film and television, buying Columbia Pictures, which produced sideshow films that Buffett hated.Coca-Cola’s annual report that year had 6 pages devoted to the film company and the liquor industry (one entire page was a picture of the red-hot Dustin Hoffman), and only 3 pages were devoted to Coke’s foreign sales Condition. The company puts Coke on a diet, and Coke is its successful business.Goiziata soon turned his attention to competition in the U.S. cola market.He was so caught up in the Pepsi fray that in 1985, Coca-Cola released a new Coke, dropping the fruit syrup formula it had used for more than a century.This staggering blunder came with an unexpected price.Under the pressure of popular demand, the old drink is back. Around the same time, Buffett switched from Pepsi to Fruit Coke.The cherry-flavored fizzy drink seemed to have a catalytic effect, and Buffett became more interested in its stock.The New Coke fiasco only added to his interest.He explained that Americans actually preferred the sweeter New Coke, but when they heard the news of the old-new deal they wanted Old Coke.Coke "is not only a taste, it can also bring back memories of playing ball and drinking Coke in childhood".Buffett continued to dig deeper, reading everything he could about Coca-Cola. An article published in "Happiness" caught his attention: Every year there is a serious investor of weight who looks at Coca-Cola's record several times, only to always regretfully conclude that he arrives too late. This report was published in 1938, when Coca-Cola set the price at 45 cents in order to split the stock. All Americans at the time thought that Coke was of extraordinary quality, and they threw a coin in the slot of a vending machine and said, "Here's a sizzling bottle." And there came a cold bottle of Coke.Even in 1938, it was thought to arouse insatiable hunger in foreigners.That's what kept Buffett's attention for a long time. By the mid-1980s, he finally saw a change in Coca-Cola's business strategy.Goiziata gradually shed securities that had nothing to do with Coke.His Yale-educated son (whose last job was in a bottling plant in Havana) has also become concerned with foreign markets. One illustrative example is the Philippines.The local San Miguel Brewery, which made both Coke and beer, neglected to make Coke, allowing Pepsi to get ahead.The Coca-Cola Company of the United States invested 13 million US dollars to become a partner of the plant, and quickly regained 2/3 of the market. Inspired by this success, Coca-Cola began to increase its bottling operations in Brazil, Egypt, Taiwan, China, Indonesia, Belgium, the Netherlands and the United States.In France, where the annual per capita output is only 31 bottles, Coca-Cola has started a protracted battle to lay off bottling plants.Companies also care more about profits.In Mexico, a large market with special profits, prices continued to rise and profits inflated like a pump.This shift in strategic focus is not news, it's clearly stated in Coke's annual report.Its 1986 annual report, whose cover featured three bottles of Coke on top of the world, contained the company's fervent hopes for the future: The potential is endless.Coca-Cola systems are being installed everywhere...there is Coca-Cola all over the world, it can be bought everywhere, it can be sold everywhere. The numbers in the report suggest that the company's strategy has paid off handsomely.From 1984 to 1987, before Buffett invested, its worldwide sales increased by 34%, and its profit margin per gallon rose from 22% to 27%.Total foreign profits rose from $666 million to $1.11 billion. Even more intriguing in the report is the rebalanced company itself. Coca-Cola's foreign profits accounted for just over half (52%) of its total profits in 1984; by 1987, three-quarters of its profits came from non-domestic sources.And the unknown potential is still endless.In the economically booming Pacific Rim, the average person drinks less than 25 bottles of Coke a year; in Africa, even less.Even in Europe and Latin America, where it has been in business for decades, the number is less than 100 bottles.And in those densely populated places and places not mentioned, the profit per bottle of Coke is much higher than domestically.Buffett believes that this is strong evidence that the "coupon" on Coca-Cola stock will rise for a long time.He wrote when he made his investment but before the stock soared: "What I saw at the time was: very clear and fascinating... The most popular product in the world has built a new monument for itself, and its overseas sales are exploding. rapidly expanding." In addition, Goiziata is using the company's remaining funds to buy back its own stock, and Buffett has persuaded Catherine.Graham bought back his Post shares in exactly the same way.He also judges managers' work in terms of capital gains.Sounding similar to Buffett, Goiziata, who has no financial training, commented: "I find that when you start to make people accountable for their capital, all kinds of [good things] can happen." Buffett has a soulmate . By the second half of 1988, Coca-Cola was trading at 13 times projected 1989 earnings, or 15% above the average stock price, which was Ben.A price Graham couldn't afford.But given its profitability, Buffett thinks he's buying a Mercedes for Chevrolet prices.He didn't think he'd abandoned Graham, absolutely not. I think buying Coke is as marginally safe as spending 40% of the conglomerate's money on Union Transit.I always earn more than I pay.It's easier to understand that way. In fact, every analyst on Wall Street has seen it.In his annual report, Buffett elaborated on his understanding of the Coca-Cola Company, which even the fourth-rate brokers can understand.Coca-Cola is the most famous trademark in the world.But analysts cringed because of a few surprises ("force buys," in the words of First Boston's Martin Lohm).It's not because their research is wrong, but because their nerves can't stand it.dean.Lawrence of Witt & Co.Adelman commented: "Coca-Cola has the ability to expand profits at a rate of 500 times higher than S&P in the next 5 years." .Roy of the Kidder Peabody Company at the time.Barry also thinks that the stock price will have a big increase, but he dare not recommend this stock to others because "the recent changes in the US dollar are very unstable." Even more interesting is Paine Webb's Emmayo.Goldman, who is bullish on Coca-Cola but prefers the diversification of Pepsi.What he committed was a common mistake on Wall Street, focusing too much on the overall.Pepsi has a higher priced Frito, he said.Lay, Mountain Duo with better results, domestically produced pizza, 49-cent Taco Bell meals and healthier Kentucky fried chicken.All of this should be a boost for PepsiCo.Buffett also has his eye on PepsiCo, which is also doing well.But he doesn't have the same confidence in pizza, fried chicken and taco meals.He summed up the value of Coca-Cola in one sentence: If you gave me $100 billion to give up Coca-Cola's market leadership, I'd give you the money back and say, no way. After Buffett invested in Coca-Cola, he became a company director, but he played no role on the board of directors.In short, anyone who knows the outcome in advance will buy it.But Wall Street investors doubt whether Buffett is worth learning.They still insist that Buffett bought inside information to make this decision; they certainly have no hope of that.A broker in Omaha seemed to know everything and said: "Buffett's network is the best." So Wall Street shouted hoarsely again: No one can compare with this expert. Buffett did have several business negotiations, such as Solomon, which were completed through personal relationships, and Buffett's personal circle is indeed not small.But most of his investments are in stocks bought on the market.In fact he asked his agent not to distract him with capricious ideas.According to Munger, Buffett has used his personal connections to investigate since the first time. Compared with Buffett's usual holding time, the value of the grapevine is so vague that it is difficult to imagine whether the information will be useful in 5 years.But it's also a relief to those who hadn't thought of it and envied Buffett's success.Once an investor asked to buy another Berkshire, his Manhattan broker said bitterly: "Warren makes mistakes." Complicated "tools".Those who study the annual report less diligently than he do not want to believe it, especially those who discover stocks as he himself said.A financial editor found out that Buffett's "secret" might be a "black box" hidden deep in Kaiwit Square? Buffett has repeatedly stated that he has no magic shortcuts or crystal balls.Once, when a broker asked Buffett for his opinion on interest rates when buying a house, Buffett jokingly said: "Only two people know. They both live in Switzerland, but they have completely opposite opinions." Small investors can do most of what Buffett does, like reading newspapers and trade reports.He deeply felt that the thinking of many sensitive people was wrong.Small people can also invest in the market, as long as they persist in constructing their own Graham and Dodd network.But he found that people either wanted to eat it all at once and become fat, or never.Many people are "unnaturally" complicating things.This problem has also infected the Buffett family. His older sister, Doris, once tried to supplement her income by selling "unsecured options"—the kind of market roulette that Buffett despises.When Black Monday rolls around, adventurous Doris finds herself $1.4 million in debt.Warren agreed to let him arrange for Doris's livelihood, and she would get a certain monthly allowance.But he frankly refused to pay her debts, and had no choice at all.Doris was hurt a lot, and she was always cold to Warren from then on, and he was hurt by it.But his nature does not allow him to help a speculator. No one can make Buffett change the rules, not even his own sister. Of course, following Graham and Dodd's footsteps is not something Doris (and most others) can do. It's just Buffett who has the gift.Just mention a stock, any stock, and Buffett can summarize its facts, just like he memorized the population of cities in various places when he was a child.His numerical prowess similarly stunned his colleagues. (Buffett explained his penchant for mental arithmetic by saying that if he doesn't understand numbers in his "head," he doesn't understand them at all, so he doesn't use a computer.) People are used to describing his thinking in mechanical terms.Doris herself has repeatedly described how quickly information is reacted to on Warren's "screen"; Mike.Goldback once talked about his "retelling" from memory insurance policy.This ability to quickly sift through index cards in his head allowed him to recall past situations, developing an investing instinct through wordless recollection.Ordinary investors don't have calculators in their heads, nor do they have clear encyclopedias ready-made. That's not to say Buffett can't be a role model. (Ted. William can make a not-bad hitter, though not a 400-yard hitter.) Everyone is entitled to an analytical approach that treats stocks as part of their business, rather than flashing them on a screen. However, just like everyone has the right to buy rights transactions.Munger believes that Buffett's style is "well worth learning." Don't get me wrong, I don't think tens of thousands of people are doing all right, but hundreds of people are doing better than they think.This should be viewed in two parts. But part of the "duality" is that people often confuse "simple" with "easy".Buffett's approach is straightforward and "simple" in the sense that it is.But it is not easy to do.Valuing a company like Coca-Cola requires wisdom developed through years of experience, as well as a strong subjective element. One Berkshire shareholder complained that there were too few franchisees like Coca-Cola.Munger criticized him bitterly: "How can there be such an easy thing; you do it two or three times and expect the family to have money for a lifetime?" Buffett said that this does not require formal education, nor does it require a high IQ, what matters is temperament.He talked about a little game he made in business school.Suppose he said in a lecture that each student can get one-tenth of each classmate's future income, who would they choose?Students can pick left and right.Buffett found that they did not choose the brightest classmates, but those who had the following qualities: loyal, energetic, principled, and intelligent. What matters most is the confidence in your own judgment, which keeps you calm and keeps you from "loosing your feet."The performance in the market is that if you recognize the value of a certain stock (the value of the company), then the news about its decline will not cause you to panic.In fact, Buffett must fully believe in it before every investment, so that even if the market has been on the verge of collapse for several years without any good news about the stock price rising, he will be proud of owning such a stock.It sounds special, but people don't have daily quotes on their homes, and most people don't lose sleep worrying about their value.That's how Buffett sees Coca-Cola. When his investment was made public in February 1989, Berkshire.Hathaway's stock is also bubbling like it's been injected with carbon dioxide.It sold for $4,800 a share, and only six months later it was up 66% to $8,000. Buffett, now worth $3.8 billion, seems designed for this new investment.He soon became an advocate of the Coca-Cola Doctrine.He would recite to anyone who would listen the per capita consumption of Coke in every country in the world, or analyze each can of Coke by its financial components.He knows its sales and growth rate.When he sees the red and white cola piled up in the supermarket, he will feel an impulse and comfort.He explained to his visitors that he knew people were drinking the product 24/7, as if they were sitting in Buffett's office.He keeps in mind such a set of figures: every 8 ounces of Coke sold has a profit of 1 cent, 700 million copies are sold every day, and 250 billion copies can be sold every year.