BackPat Monroe, Coke and the culture of equity
In India we sorely miss an equivalent of Pat Monroe.
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We all know the story of The Coca-Cola Co.—$162 billion market cap, $48 billion sales, 16 brands having a billion dollar plus valuation, $9.1 billion returned to shareholders in 2012 and 51 years of an uninterrupted dividend payment track record. Coca Cola was established in 1892 by Asa Griggs Candler to market drinks based on Formula X bought from a pharmacist John Pemberton. The fizzy drinks company has been sweetening the portfolios of hard-nosed equity investors for decades. In fact, it is one of the stocks that has made Warren Buffet a legendary investor. Another early investor into Coke, Mort Bates, would be often asked the best time to buy shares in Coca-Cola? His reply was a standard: “Any time you got money." Luckily for him, anybody who followed his advise has had no reason to regret the decision.
But the most interesting story around the Coca-Cola stock is around a small town banker called Mark (Pat) Monroe who lived in the tiny town of Quincy, Florida. Around 7,000 people and 20 miles west of Tallahassee in Florida—the town was famous for tobacco and other agricultural products. Ranked as one of the wealthiest (in terms of per capita income) towns in the US, it also had more number of millionaires (per capita) than any other town in the US. It has remained remarkably immune from recessions and depressions over last many decades. The success of Quincy can be attributed to banker Pat Monroe who worked in Quincy in the 20s and 30s and his amazing push for equity as an investment destination.
The story goes like this: Coca-Cola came out with an initial public offering (IPO) in 1919 at $40 per share. Post listing, a conflict with the sugar industry resulted in its stock price correcting to 19 per share. Monroe was the banker to the tobacco farmers, who would turn to him for investment advice especially after a good harvest. Back then bankers were a part of family in small towns.
Monroe watched people guzzling Coca-Cola more and more, year after year. Another thing he noticed was that even during a recession, people could not stop drinking Coke. He saw the Coke becoming a powerful brand over time and started recommending Coke shares to anyone who sought his investment advise. He’d call people to persuade them to invest and would even underwrite bank loans for his responsible depositors, backed by Coca-Cola stock. He pushed Coca-Cola stock to farmers and widows—an unlikely class of an equity investor. Monroe’s business skills in convincing others to buy assets that produced cash irrespective of short-term market fluctuations, not only changed lives it saved the farm town during the Great Depression and every single recession thereafter as dividend from Coca-Cola shares never stopped.
When crops would fail, it was the dividend income from Coca-Cola or sale proceeds from the Coca-Cola shares that kept Quincy houses running. When the national economy collapsed, it was the Coca-Cola cash that allowed people to stay in their homes. When times were good, and Coke was cheap, more shares were purchased. As per one count at least 67 appropriately dubbed “Coca-Cola millionaires" amassed significant fortunes before passing these on to children and grandchildren. One share of Coca-Cola bought at 40 in the IPO of 1919 is worth today more than 10 million (including dividend reinvestment) and would be yielding $270,000 in pre-tax cash dividends to the owner by sending a check for $67,500 every quarter. That will be about 6 times plus what an average American earns.
The story does not end here. The Coke millionaires were public spirited people who spent money to provide education, better infrastructure and overall development to the people of Quincy. They were a remarkable group of people who decided to ignore stock market volatility and focus on the one metric that matters: profits generated by the business, and to a lesser extent, the percentage of that profit that was distributed each year in the form of dividends. As long as profits and dividends went up each year, and there was no change in the competitive position of the underlying business, shares were bought. They were never sold. This is what people mean when they say it only takes one good idea in life to get rich.
In India we sorely miss an equivalent of Pat Monroe. We have companies such as Wipro Ltd which has generated returns better than Coca-Cola. It is difficult to find an original holder of Wipro other than promoters in the country. It is difficult to hear about how 10,000 invested in Wipro pre-independence would have grown to couple of hundred crore and how its dividend income alone will be a multiple times the original investment. It is difficult to hear about such stories in the daily commentary of buy above 101 and sell below 99. The cult of long-term equity will be built on such stories of wealth creation. Today when foreign institutional investor ownership of many of the bluechip companies of India is a multiple times that of retail owners, it is important to spread the knowledge of long-term power of equity investment. Tomorrow might become too late for us to buy back the ownership of bluechip Indian companies.
Nilesh Shah is director, Axis Direct.
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