The town of Coke millionaires: Why long-term investing works
By Tim McArthur - June 25, 2013
The Coca-Cola Company (NYSE: KO) owns what is probably the best known brand in the world – Coke. While the business first listed on the New York Stock Exchange in 1950, the company had already gone public in 1919, with its stock selling at around $40 per share at the time of its initial public offering (IPO). Not long after the IPO, some sugar industry woes, (sugar of course is a key ingredient in Coke) led to the share price dropping to just $19. It is around this time that the story gets interesting, particularly for the folk of a small town in the USA.
In Quincy, Florida, a banker named Pat Munroe had been involved with The Coca-Cola Company IPO. By 1919, Coke had already been available for over 30 years and Munroe, to his credit, could already see the potential. Munroe loaded up on stock in the company and told everyone in the little town of Quincy to do the same.
Luckily many Quincy residents listened to Munroe and importantly not just his advice to buy, but also his advice to hold forever. Rumour has it that somewhere between 24 and 67 Quincy families became multi-millionaires, simply from their holdings in The Coca-Cola Company. A Bloomberg article speculated that in 1996, there was still $375 million dollars’ worth of Coca-Cola stock owned by Quincy residents. As for Munroe, it is rumoured that in his will, he bequeathed $1 million dollars’ worth of Coca-Cola stock to each of his 18 grand-children!
The wealth attributed to Quincy residents is astounding, yet when you look at the chart below it becomes easy to see how the beauty of compounding, and a long term time horizon can make this possible.
Source: Google Finance
Finding the next Coca-Cola Company isn’t easy and why should it be? We all know money doesn’t grow on trees and isn’t meant to just fall into your lap. It takes hard work and persistence. Generating the level of shareholder wealth that The Coca-Cola Company has produced is certainly rare.
While they may never produce the same level of gains, there are some ASX-listed businesses which have had significant outperformance since the turn of this century, and possibly could continue their winning ways for many years to come. Woolworths (ASX: WOW), Westfield (ASX: WDC) and Cochlear (ASX: COH) are three such companies. While the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up 42% since October 2000, over the same time period, these three firms have grown 370%, 573% and 415% respectively.
There are many different approaches to investing. Some may say it’s Foolish, but buying at a reasonable price, quality businesses that pay dividends and have the ability to continually grow and expand their businesses, is a tried and tested way to increase your wealth.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
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The Coca-Cola Company (NYSE: KO) owns what is probably the best known brand in the world – Coke. While the business first listed on the New York Stock Exchange in 1950, the company had already gone public in 1919, with its stock selling at around $40 per share at the time of its initial public offering (IPO). Not long after the IPO, some sugar industry woes, (sugar of course is a key ingredient in Coke) led to the share price dropping to just $19. It is around this time that the story gets interesting, particularly for the folk of…