Buffett’s lesson: Even a great company needs a good price
By the late 1990s, Coca-Cola had already made Buffett a lot of money. He liked the business, so he continued to hold the stock without selling.
But the share price already reflected the market’s expectations for rapid future growth.
Then Coca-Cola’s business ran into trouble: overseas markets weakened, and a product recall took place in Europe. In 1999, the company’s net income fell about 31% year over year, failing to deliver the growth investors had expected.
The share price fell as well. Reports say the market value of Buffett’s holding dropped by half, from a peak of $17.5 billion to $8.75 billion.
Although Buffett had bought the shares at a low price in the early years and still had plenty of profit, he gave back a large amount of his paper gains by not trimming his position.
Even great companies can become too expensive to be worth buying. When a share price has clearly moved far ahead of the fundamentals, selling some shares to lock in gains can also be a reasonable choice.
Being bullish on a company over the long term doesn’t mean never selling a single share at any price.
By the late 1990s, Coca-Cola had already made Buffett a lot of money. He liked the business, so he continued to hold the stock without selling.
But the share price already reflected the market’s expectations for rapid future growth.
Then Coca-Cola’s business ran into trouble: overseas markets weakened, and a product recall took place in Europe. In 1999, the company’s net income fell about 31% year over year, failing to deliver the growth investors had expected.
The share price fell as well. Reports say the market value of Buffett’s holding dropped by half, from a peak of $17.5 billion to $8.75 billion.
Although Buffett had bought the shares at a low price in the early years and still had plenty of profit, he gave back a large amount of his paper gains by not trimming his position.
Even great companies can become too expensive to be worth buying. When a share price has clearly moved far ahead of the fundamentals, selling some shares to lock in gains can also be a reasonable choice.
Being bullish on a company over the long term doesn’t mean never selling a single share at any price.
