How a Cherry Coke landed Warren Buffett a 20-bagger

 (Nati Harnik, AP, File)
(Nati Harnik, AP, File)

By Alec Hogg

In 1987, Warren Buffett’s old pal from Omaha, Don Keough, decided to convert the famously loyal Pepsi drinker to Coca-Cola. At the time, Keogh was the President and COO of Coke and knew teetotaller Buffett used to drink his own concoction of Pepsi and cherry syrup.

He made sure Buffett was one of the first to taste the new Cherry Coke – and the Berkshire boss was soon hooked. So began a story that ended up with Berkshire becoming Coca-Cola’s biggest shareholder.

Buffett had always admired the Coca Cola business but regarded the shares as too expensive because they offered no margin of safety. That changed when a combination of the October 1987 Crash and a price war with Pepsi cut the Coke share price by half.

In 1988, Buffett went on a buying spree that saw him scoop up 6% of the company’s equity – taking full advantage of the once in a lifetime opportunity.

Such is Buffett’s pulling power that while he was busy buying Coke shares he got special dispensation from the authorities to hold off disclosing his purchases for a year.

When he did finally go public, in March 1989, the flood of buying orders from his army of coat-tailers was so great, the New York Stock Exchange had to suspend trading in Coca-Cola shares to stop the price rising too high.

Berkshire is still Coca-Cola’s biggest single shareholder with its stake now 9.2%. The share price has risen 20-fold since 1988. And it all started with a Cherry Coke.

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