The Triad Perspective

Triad Investment Management, LLC is a SEC-registered investment adviser based in Newport Beach, California.  We manage portfolios, including retirement and corporate accounts, and provide investment counsel to our select group of clients, which include:
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  • Affluent families and individuals
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Things Go Better With Coke

It's funny the things you remember. I remember, barely, the TV ad tagline in the headline above. As I get older, I'm happy to remember what I had for breakfast. Actually, I cheat and have the same thing each day.
Nevertheless, I remember a decision from 20 years ago like it was just yesterday. Why? I suppose it's because I thought long and hard about making the decision.
Way back when, early in my investment career, I worked for a large bank trust department. Oh, those were not the days, back in the late 1980s. Why? At the time, bank trust departments tended to be a bit sleepy.
Warren Buffett, whom I had read about, had taken a stake in Coca-Cola in 1988. Why was Warren investing in Coke, which seemed to be a large, boring, sleepy American business? And Buffett put $1 billion into Coke, the largest amount ever for him at the time. It seemed a bit puzzling.
Fast forward ten years. Buffett, as usual, proved prescient in his pick. Coke stock was a 17-bagger over the 10 years, rising from $2.50 to $42 per share, plus dividends. Investors valued Coke at 14x earnings in 1988. By 1998, after the Oracle of Omaha's halo effect, mixed with the late 1990s booming market, Coke's sugar water was valued at 50x earnings.
The Coca-Cola boys marveled at their own observation that their sugary stuff accounted for only 2% of human liquids consumption. Just think about the potential to replace coffee, tea, beer, wine, spirits, milk, water--every drink on the planet!--with the cool, refreshing, fizzy taste of sugar water. I kid you not, while clearly not feasible, nor healthy, Coke trumpeted the global potential of their beverages.
Meanwhile, toiling in the bank trust department, I had a decision to make. A large client needed some funds for a real estate project. This client had a rather large holding of Coca-Cola. With a rather small cost per share. I chose to exercise my rational side and sold almost all of the Coke holding, producing a large taxable gain. No objection from the client, fortunately.
Fast forward another ten years, and it's another different picture. While Coke stock was on fire during the 1990s, the 2000s proved the polar opposite. Sales and earnings grew, just not as fast as many optimists had expected based on the prior 10 years of results. Disillusioned investors marked down the price of Coke stock from $42 to $25.
That's right, had you bought Coke in 1998 at $42, ten years later your stock would be worth $25 per share. You'd have lost money. You'd have lost a bit less if you include dividends, but same result.
Today, Coke sells for around $45 per share. The unlucky--or perhaps overly optimistic--investor who bought Coke stock twenty years ago would be sitting with a stock selling for only a few dollars more than the prior twenty years.
What are the lessons here? A few come to mind:
Markets--and individual stocks--go through cycles. The cycles can play out over very long periods of time. Decades in this case of Coca-Cola. Paying attention to the price you pay can be critically important.
Investors can underestimate the future. This was the case in 1988 when Buffett was buying Coke stock. Investors can overestimate the future. This was the case in 1998, when the dot-com bubble was in full swing and investors were feasting on Coke's past results.
The future is hard to predict. I know, I'm a master of the obvious. What seemed like global domination for Coke ran into the buzz-saw of increased consumer concerns about sugary soft drinks and health, along with many healthier soda alternatives.
Lastly, vested interests. Coke saw the writing on the wall about soda, sugar, obesity and diabetes. But it's very hard when you're a global juggernaut to admit the future doesn't look too rosy. And even harder to act on that observation.
As investors, the price you pay almost always matters. And the future rarely develops the way you think it might. So we don't expect the best outcome, and we don't pay for the best outcome. Rather, we assume some rain, and not eternal sunshine.
We'd prefer long-term results from a rational process, instead of a short-term sugar high that tastes like a glass of warm, flat Coca-Cola.

-John Heldman, CFA

If you don't pay too much.

Past performance does not guarantee future results.  Results are presented net of fees and include the reinvestment of all income.  The opinions expressed herein are those of Triad Investment Management, LLC and are subject to change without notice. Consider the investment objectives, risks and expenses before investing. The information in this presentation should not be considered as a recommendation to buy or sell any particular security and should not be considered as investment advice of any kind. You should not assume that any securities discussed in this report are or will be profitable, or that recommendations we make in the future will be profitable or equal the performance of any securities discussed in this presentation. The report is based on data obtained from sources believed to be reliable but is not guaranteed as being accurate and does not purport to be a complete summary of the available data. Recommendations for the past twelve months are available upon request. In addition to clients, partners and employees or their family members may have a position in any securities mentioned herein. Triad Investment Management, LLC is a SEC-registered investment adviser. More information about us is included in our SEC Form ADV Part 2, which is available upon request.  

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