PROFESSOR YANG 00:00
So, I’ll ask the first question.
So, thanks very much for talking about the Coke example. One of the things I was wondering about those you talked about how Coke has this great business, right?
And you talked about a lot of the qualities that make the product very good and also the structure of the company. How do we think about how much the company is worth? Right so, even the great business is not worth infinite, right? So, how do we go from what’s a good business to whether that’s a good stock to purchase?
MOHNISH PABRAI 00:27
Right. So Munger gives us the answer, right? So he says in 1996 going forward 38 years that the value of the business is 16 times the current value plus all the dividends. So he tells you that right? And so they – the way they got to the value of the business was they just looked at, you know, unit volume and humans and market share and did some math on that.
And so then you know the question you ask yourself is how real is that? And the reality is quite frankly from the point he made the speech till now, it’s quite real. I mean in the sense that the unit volume continue to go up, Coke has continued to increase and expand its brands, they’ve got a lot of stuff now, which is non-sugar, non-carbonated using that distribution engine and the distribution engine is very expensive to recreate.
So someone comes up with a drink like Monster, for example, for them to replicate what Coke has, is very uphill. I mean, it’s a huge undertaking, you’re better off selling to a Coke, right?
Even at a high multiple and for a Coke, even if they pay 50 times multiple for a company that they think has global potential, they’ll get that very quickly because the volume growth by pumping it through their system. So having that distribution channel gives them a huge edge.
So you would have to have some change along the lines of humans not consuming liquids or something along those lines, which I mean all businesses I think have issues you can’t get to bulletproof, but I would say Coke I think gets as close to bulletproof as you can get. It’s probably one of the – and I think that’s why Warren put a quarter of the pie into it.
Every valuation has a story behind and the question is how real is your story?