Warren Buffett bought more than $1 billion of Coca-Cola (KO) shares in 1988, an amount equivalent to 6.2% of the company, making it the largest position in his portfolio at the time. It remains one of Berkshire Hathaway's biggest holdings today, as of October 2019, holding the number three spot. But what made the Berkshire Hathaway Chairman make the purchase at that point in time, particularly when the stock was still reeling after the 1987 market crash?

Key Takeaways

  • Warren Buffett's Berkshire Hathaway bought more than $1 billion in Coca-Cola shares in 1988.
  • After the stock market crash, Coca-Cola stock had been hit hard along with so many other companies.
  • Buffett & Co. determined it was a good company, had great value, could withstand competition, and was poised to recover.
  • Purchasing the shares of Coca-Cola marked a significant turnaround in Buffett and Berkshire Hathaway's investing philosophy.
  • Today, Coca-Cola is Berkshire's third-biggest holding.

Good Stocks Sunk by the Crash

The stock market crash of 1987 had created attractive valuations, as all types of stocks were sold off with little regard to fundamentals. Coca-Cola is the dominant company in the beverage industry and has large food holdings as well. Further, Coca-Cola's iconic name and global reach created a moat around its core soft drink product, so Buffett did not have to worry a competitor would come and take away its market share.

An Evolving Investing Philosophy

The Coca-Cola purchase suggested that Buffett's investing philosophy had evolved from Benjamin Graham and a focus on finding situations in which a company's value exceeded its market price.

This adjustment was necessary to account for the growing size of Buffett's portfolio, which made it more difficult to take advantage of market inefficiencies; it also hindered active management and reduced the number of opportunities he could consider that would have a meaningful impact on its performance.

Notably, the influence of Charlie Munger, the vice-chairman of Berkshire Hathaway Corp., and his philosophy of ethical investing also played a part.

1:36

Warren Buffett: InvestoTrivia Part 1

Coca-Cola heralded a change in Buffett's approach from "buying bad companies at great prices" to "buying great companies at good prices." Buffett's investment in Coca-Cola grew nearly 16 times over the ensuing years when accounting for dividends. This is an annualized gain of 11%, approximately.

Coca-Cola is Berkshire Hathaway's third-largest holding, more than 30 years after it first joined the portfolio.

Buffett's Top 10 Holdings

Warren Buffett continues to be an investor in Coca-Cola today. The Berkshire Hathaway stock investment portfolio's top 10 stocks—by the number of shares—according to Investor's Business Daily and the most recent SEC filing from August of 2019 are as follows:

  1. Bank of America (BAC), 927.3 million
  2. Wells Fargo (WFC), 409.8 million
  3. Coca-Cola (KO), 400 million
  4. Kraft Heinz (KHC), 325.6 million
  5. Apple (AAPL), 249.6 million
  6. American Express (AXP), 151.6 million
  7. Sirius XM (SIRI), 137.9 million
  8. U.S. Bancorp (USB), 132.5 million
  9. Bank of New York Mellon (BK), 80.9 million
  10. General Motors (GM), 72.3 million