Investing Guidelines: Value Tenets 135same time, his conviction about the company had not changed: The
probabilities of Coca-Cola’s share price beating the market rate of return
were going up, up, and up (see Figure 8.1)
So what did Buffett do? Between 1988 and 1989, Berkshire Hath-
away purchased more than $1 billion of Coca-Cola stock, representing
35 percent of Berkshire’s common stock portfolio. It was a bold move.
It was Buffett acting on one of his guiding principles: When the proba-
bilities of success are very high, make a big bet.
Gillette
From 1984 through 1990, the average annual gain in Gillette’s share
was 27 percent. In 1989, the share price gained 48 percent and in 1990,
the year before Berkshire converted its preferred stock to common,
Gillette’s share price rose 28 percent (see Figure 8.2). In February
1991, Gillette’s share price reached $73 per share (presplit), then a
record high. At that time, the company had 97 million shares outstand-
ing. When Berkshire converted, total shares increased to 109 million.
Gillette’s stock market value was $8.03 billion.
Depending on your growth assumptions for Gillette, at the time of
conversion the market price for the company was at a 50 percent discount
Figure 8.1 Common stock price of the Coca-Cola Company compared to the S&P 500
Index (indexed to $100 at start date).