buffeted by buffett

Warren Buffett is a great buy. If he had not done what he has done, we would not have had the Warren Buffett we know. Sharp, witty, and an amazing storyteller. He is a cult. I have mentioned earlier as well that he has shaped my thought process in a major way, both in investing and in life in general. Needless to say again, I admire him a lot. 

Berkshire Hathaway has never paid out any dividends, nor has it bought back its stock so far. The reason: Buffett feels that he can allocate capital better than his fellow shareholders. And why not? History is with him. The strategy has worked superbly over many decades. Yet, now the time is different; he is working with truck loads of cash that he needs to allocate in a manner that returns higher than alternative opportunities. Admittedly by him, repetition of historical returns is getting way tougher. 

There is at least one investment that has not gone well with him in the past decade. Never mind that I don't like the product personally. Coke is all fizz and fuss; sugar and soda. And that's the reason I had a fourth question for him. In 2007, Berkshire had 200 m shares of Coke, representing 8.6% ownership, the market value of which was $12.274 b. In 2012, it had a 2:1 split, and Berkshire owned 400 m shares, representing 8.9% ownership, and worth $14.500 b. In 2016, the 9.3% ownership in Coke had a market value of $16.584 b. The increase in ownership was due to Coke's share buybacks, in which Berkshire never participated, Buffett being an all time fan of both Coke as a product and a business. 

Berkshire's investment in the stock had a high market value of $12.864 b and a low of $9.092 b in 2007. The values were $16.264 b and $13.316 b in 2012; and so far in 2017, the high value has been $18.972 b and the low has been $16.176 b. Berkshire neither bought, nor sold any Coke shares during the last decade. Therefore, the original 200 m shares have become 400 m post stock split. When we consider high values throughout, the return for the first five years from 2007 to 2012 was 4.80%. And for the next five years from 2012 to to date in 2017 has been less than 3.13%. The return over the last decade has been less than 4%. 

Now some math. If Buffett had sold the shares in 2007 at a high value of $12.864 b, and invested in Berkshire's (his own) alternative opportunities, the investment would have been much more than the current value of $18 b. If the opportunity cost of 10% is considered, the loss to Berkshire and its shareholders has been $15 b. When you madly fall in love with the stock, you have some serious consequences. 

What about the opportunity cost of his fellow shareholders? Surely, some or more of them would have dealt with the cash better than Buffett. Check out the S&P-500 just for comparison, and you will know. What next? Is he going to be in a denial mode all through? Hasn't Coke lost its mojo? It's a surprise, surprise that all-sugar-and-soda had its magic prevailing over the century; the stupidity of humans knows no bounds; remember, some of the smartest guys we know have extraordinary fondness for the can; and that's a debate for another day.

In May 2017, I did suggest to return cash back to the shareholders to mend themselves. Of course, Buffett is human, and is entitled to his share of mistakes. But would he listen now? Surely, you're joking, Mr...