You Can Special Order the “New Coke” Formula for a Limited Time as Part of a Netflix Stranger Things Product Tie-In
This morning, Aaron reminded me that today was the day Coca-Cola was releasing the limited edition Stranger Things collection at the official Coke store to celebrate the 1980s and tie-in with the upcoming third season of the Netflix hit show! One of the packages you can order includes two cans of the “New Coke” that was released as a replacement to classic Coca-Cola back during the Reagan years and which quickly led to a global outcry that caused the company to reverse course as people lost their collective minds at the idea of never being able to drink “real” Coca-Cola again. The store-within-a-store, which is meant to mimic an old Bulletin Board System in design, can be found at https://www.cokestore.com/1985/. The package I just mentioned is priced at $19.85 to continue the theme (though if you sign up for a Coke store account, you can get a 15% discount).
The result of this blast from the past: I’ve been listening to 1980s music at my desk all morning – Eternal Flame by The Bangles has been playing on repeat as I review our recent trade book though I also have Paula Abdul’s Straight Up, and Kokomo by The Beach Boys on deck.
I loved that last one. Sometimes, the bus driver on the way home from Kindergarten in Lee’s Summit, Missouri, where we lived briefly, would put it on the speaker system so we could listen to it on the drive before I would inevitably get home and play the original Legend of Zelda or Super Mario Bros. 2 on NES. (Speaking of which, did you know it’s possible to write in-game code in the original Zelda to essentially break the memory process and warp to the Triforce during the Second Quest? Here is a fantastic in-depth walk-through explaining what is happening in the software. Or that there is a really interesting business story behind the reason Super Mario Bros. 2 looks so different from all of the other Mario games in the series. The Gaming Historian on YouTube did a video explaining how it originated.)
Oh man, and the Commodore 64! Aunt Donna had one and I loved that thing! Loading floppy disks, typing at the command prompt … the sound of those big, chunky mechanical keys, which was so satisfying! She had so many great games! She picked it up at a garage sale, I think. She always had amazing gadgets and tech, often years before anyone else. I remember researching which domain names we should register in the 1990s on dial-up Internet on her old Windows system. Google hadn’t been invented, yet. Yahoo was emerging as the newest, biggest place to be, though it was mostly a directory in those days, so you’d find a category of site that interested you and browse through the links.
This all got me thinking about Coke stock, of course. I started wondering what would have happened if someone had purchased shares in 1985 and held them through today. I ran a quick back-of-the-envelope calculation (that will not rise to the usual level of precision as some of our other academic case studies so take this as a rough approximation meant to illustrate the power of compounding).
Imagine it is January 1, 1985. You’re a successful professional who lives below his or her means. This results in a good amount of surplus capital you can put to work for your family’s financial success. You decide you want to buy 1,000 shares of The Coca-Cola Company, a blue chip stock that, in turns out, was going to be added to the Dow Jones Industrial Average only a few years later in March of 1987 (it and Boeing replaced Inco and Owens-Illinois on the component list). According to the digitized archives of the stock tables from The New York Times, Coke closed the year prior, 1984, at $62 3/8 per share (recall that in those days, stocks were traded in increments of 1/8ths of a dollar, not pennies, so this equated to $62.375 per share). Thus, for the sake of this academic experiment, we’ll say that after placing your trade at the next available opportunity upon the markets opening in 1985, your 1,000 shares cost you $62,375. This will make things easier but your actual cost would have been a bit higher due to commissions. For what it is worth, and speaking in broadly approximate terms, in the 1980s, a typical stock trade might have cost you around $45 if you were price sensitive, otherwise, you would have paid several hundred dollars were you trading through, say, a local bank trust department who likely took a basic commission plus a percentage of principal on both the buy and sell side of transactions.
Your 1,000 shares of Coke stock bought at $62,375:
- Split 3-for-1 on 06/16/1986, becoming 3,000 shares
- Split 2-for-1 on 05/01/1990, becoming 6,000 shares
- Split 2-for-1 on 05/01/1992, becoming 12,000 shares
- Split 2-for-1 on 05/01/1996, becoming 24,000 shares
- Split 2-for-1 on 07/27/2012, becoming 48,000 shares
This means your ending cost basis on those 48,000 shares would be about $1.30 per share. Today, those same shares opened at $49.82, giving them a total market value of $2,391,360. That’s only part of the story.
On top of the stock you still hold, throughout this holding period, Coke was a major dividend payer as it shared its profits with owners by quite literally mailing you physical checks or depositing cash in your bank or brokerage account. That means that over the years, Coke has sent you $925,421.68 (or thereabouts – it gets a bit tricky due to some problems with the data source towards the beginning of the measurement period but it’s close enough for our approximation so please forgive any minor errors in either direction that, on the whole, should not be material as a percentage of ending values).
That was $925,421.68 in pre-tax cash – liquid cash – you could spend on furniture, clothes, vacations, concerts, paying for your kids’ educations, renovating your home, buying new cars, or reinvesting into other productive assets that generated their own streams of cash for you to enjoy, accelerating the compounding cycle.
Thus, your $62,375 outlay turned into $3,316,781.68 on a gross basis, representing a gross total profit of more than 5,217%. Note that this incredible windfall included periods, sometimes lasting nearly a decade, when the stock did next to nothing, even losing value for prolonged periods of time. Had you reinvested your dividends in Coke, or even other, less lucrative blue chips that didn’t do as well, you would have ended up with millions of dollars in additional wealth on top of this, making an already impressive result truly breathtaking.
Another cool fact: despite not reinvesting your dividends, and not buying any new shares of Coke along the way, the cash-generating power of the concentrated syrup business has done so well that every quarter, you would now be receiving $19,200 in dividends. That’s equal to $76,800 per annum, which exceeds your initial cost basis. That is beautiful. It’s absolutely beautiful.
History has shown time and time again that investors tend to underestimate what happens when you pay a reasonable price for a business that enjoys extremely high returns on net tangible capital, a durable competitive advantage, and a stable product that is tied to basic human needs, thus not requiring constant reinvention. A lot of this happens because people fear watching their friends, family, and colleagues get richer, faster. As has often been said by wise men, someone, somewhere, is always getting richer, faster than you. So what?! Accept it! Be happy for them! Don’t do stupid things – or pass on otherwise intelligent things – because you’re in a hurry!
In the interest of full disclosure: This post was written purely because it interested me and I was excited about the numerous topics I covered. I have no marketing agreement with any of the businesses listed – something that, sadly, seems necessary to mention in the era of social media “influencers” selling favorable reviews of products or services. However, you do know that I have a special affinity for The Coca-Cola Company. Aaron and I own shares in our personal family portfolio. We’ve given cash to our nieces and nephews so they can buy Coke stock. The company can also be found on both the equity and fixed-income books of our fiduciary global asset management firm, Kennon-Green & Co.®, including directly and indirectly through shares of Berkshire Hathaway Class A and Class B stock due to that conglomerate’s minority stake in the carbonated beverage giant. We care about what happens to it – a perfectly natural reaction when you consider that a lot of money flowing out of Atlanta ends up in the hands of people about whom we care! That said, Coke, like any business, could go bankrupt and wipe out its investors. Past performance is not a guarantee of future results. Things change. Prudent capital allocation requires trying to figure out which assets are worth owning at what prices. Then, on top of that decision, it involves building an overall compounding machine that attempts to mitigate risk by factoring in things such as correlated risk and portfolio weightings to the extent reasonably possible given the risk-reward trade-offs involved. Furthermore, something could happen next week that caused Aaron and I to wake up, completely re-evaluate our understanding of the business, and buy more shares, hold our existing shares, or sell shares in whole or part, personally and/or professionally. Were that to occur, you wouldn’t know about it and I will never accept the obligation to have to come back around and disclose what we are doing – the sheer volume of my writings would make that impossible so if such an impossible task were required, I’d simply stop writing altogether; at least about company-specific topics, which would be a shame because real world academic exercises are always more useful as a teaching tool, in my opinion. This post, like all of my writings, reflects my thinking at the time I penned the words and I always reserve the right to change my mind as new facts or a better understanding of existing facts, change the picture. After all, isn’t that what any intelligent, right-thinking person should do? None of this is investment advice. I’m not telling you to buy, sell, or hold Coke stock. That’s not the point of this sort of post and you know it by now. I want you to think about your compounding machine and economic engine; about how you can put together the collection of productive assets that can give you financial freedom and control over your time.
Anyway, back to the 1980s nostalgia. I got so excited about this trip down memory lane that I ended up picking up a couple of era-inspired sneakers from Adidas, one in vanilla, pink, and mint, and another in mint entirely. Now, all I need for the weekend is a pair of stone washed light blue jeans to go with them; maybe put on some old episodes of Star Trek: The Next Generation.
All of this brings up an important point. Look at how the world has changed in the past 34 years. Also, look at how it hasn’t. That is a valuable insight, both personally and professionally. In terms of economics, which productive assets do you think will be much, much more valuable 34 years from today? Which enterprises do you think have a better-than-average chance of producing gushers of cash between now and that distant point in the future? If you ask that sort of question, it will force you to re-frame your thinking to consider business models, product life-cycles, and a host of other factors that matter to wealth accumulation.
Thirty-four years will pass. That’s why I tell you to measure the success of your day by the seeds you plant. I spend a lot of time thinking about this. I believe that some of the things we have purchased in the past eighteen months will be enormously important when that future arrives. I can’t guarantee it, of course – no one can – but I can say that we’ve backed those convictions with our own money. Even if some of those businesses end up having long stretches like Coca-Cola where they go nowhere or decline, and even if a few of them fail entirely along the way, those battles may simply be necessary sacrifices required to win the war. I’m interested in the game of multi-generational wealth accumulation. This is how it is played. Patience. Prudence. Discipline.
The New Coke won’t ship for several weeks. In the meantime, Netflix is supposed to release Seasons 3 of Stranger Things on July 4th.
Update: The parade of nostalgia continues. After work today, Aaron and I discovered the new Nintendo Switch controllers that look like the Classic NES controllers. We ordered a set from the Nintendo store. Right now, they are subject to availability and limited to one per Nintendo account so if you want to pick them up, do it while you can.