If you will be given the chance to ask Warren Buffett on what company does he think has the strongest brand name, I bet he would answer Coca-Cola (KO). Buffett’s Berkshire-Hathaway owns 400 million shares of KO and is valued at more than 16 billion dollars which is a quarter of his networth of more than 60 billion dollars.
So what exactly does Coca-Cola have that Warren Buffett loves about it? Ask Buffett and he will answer you, A STRONG BRAND NAME.
Buffett on Coca-Cola: A company that has a strong brand name?
One of the things that long-term investors like Buffett look for a company is a strong brand name. Companies with strong brand names simply get rich by royalties and licensing fees. If a company has a strong brand name, it will have a massive competitive advantage on the market.
To give you an insight on how STRONG really Coca-Cola’s brand name, Buffett made this statement in an interview on the Fortune Magazine in 1993;
If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.
So okay, we know for a fact now that companies with strong brand names are competitive. So does this mean that we should start buying companies with strong brand names now?… Hold your horses first.
The trick is this, if we want to invest in companies with strong brand names, then we should buy them on a bargain price. There’s no point in buying good companies with a high stock price. Take a look at KO’s stock price way back in 1998. If you’ll compare its previous peak price into today’s price, you’ll see that it’s trading as almost the same. So if you happen to buy and hold on those times, you’ll almost have little to zero capital gains. But if you buy using cost averaging strategy, you may have high ROI by now.
So where do we find companies with strong brand names? The answer is in the media around us. Just watch TV, read magazines and newspapers. If you see something being advertised, look if the company is listed in the Philippine Stock Exchange. Search and download for its financials and check if it has an indication of a competitive advantage.
Final thoughts
As a final word, if you’re looking for stocks to buy and invest in for the long-term, look for a company with a durable competitive advantage. A company with a competitive advantage has a strong brand name, increasing sales and a very nice financial valuations for the past five to ten years. Although such stocks are volatile in the short-run, they might have a chance to outperform on the long-run.
Happy investing!