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Collection: Mohnish Pabrai - #112 'Buffett's Investment In Coca-Cola, Part 4 Managers '


Video Link: https://youtu.be/lWlrZpCOrKQ


In this episode, Mohnish Pabrai talks about the managers of Coca-Cola Company (Roberto Goizueta and Don Keough) and why Warren Buffett invest in them?


In this episode, you’ll learn:

  • How Roberto Goizueta and Don Keough manage Coca-Cola Company?

  • How Warren Buffett identify good managers?

To check out all Collection: Mohnish Pabrai <click here>

 

[Transcript]

(Source: https://youtu.be/jfxOvdiac94)

MOHNISH PABRAI 00:00

And then we get to the managers.


So, Coke had such an incredible model in, you know, this is a company that just produces fountain of cash, you know, they just gushes cash. You just can’t lose money, you just – you know, just send the syrup and you getting massive.


And so what the company did over the years is – generally speaking, what happens is that when you have businesses with great business model, you end up with dumb managers who do dumb things because even when they do dumb things, they look really good. Because the business is so good.


And so Coke would put their money into buying shrimp farms in Thailand and all these unrelated businesses and almost everything they bought was a far worst business than the core business that they had.


And in 1981, two guys came on the scene, Roberto Goizueta became the CEO, Cuban guy, and then Don Keough became his – under him, a president. And so, these two guys – and Goizueta was a – you know, they were some unusual people in the history of Coke going down the deck.


But Goizueta was a very unusual guy. So, he was really good at marketing and branding, understood this model really well, and he was really good at finance, understood capital allocation really well, very unusual to have a numbers guy with a branding guy put together. And Keough was just a great operator.


So what they did is when they came on the scene in 1981 is they started dumping all the other businesses. They got rid of all the everything Coke owned which are not related to beverages. They got rid of – and they – only thing they bought was they bought Paramount Pictures in 1981 and then realized about five-six years later, even that was dumb and on 1987 or 1988 they dumped Paramount Picture.


So what Warren saw was from 1981 till his first purchase in 1988 – in seven years, that these two guys – finally this was a company that had real capital allocators. And so what they were doing is aggressively buying back the stock.


So what the Coca-Cola Company started doing was they had this gush of cash coming in, the dividend was going on. It’s the only – one of the only companies that for 50 years, I think more than 50 years now has raised their dividend every single year. I think there’s no other company in NYC that has done that, some that are maintained it, but they raised dividend every single year.


So, the first thing they did was they cut out, got rid of all the crappy businesses, sold them. And the second is they started aggressively buying back stock. And so basically, they took their cash flows. And Goizueta was brilliant.


So Warren I think saw what was going on with Roberto Goizueta and Don Keough coupled with all the other stuff I just told you. So now you finally had a business which had management that got it. And that’s why they went in. And Roberto Goizueta himself owned 2.5% of Coke. So he actually had a significant economic interest and went from there.

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