Learning This Simple Concept Could Make You Rich
There is a simple path to wealth...
It doesn't require much work. It doesn't require much knowledge. You don't have to be lucky, or even all that good.
You just have to learn one simple concept: capital efficiency.
It's one of our favorite strategies of is perhaps the greatest investor of all time. Finding companies that generate massive amounts of cash without having to pour huge sums back into capital investment to keep the business going and growing.
They don't have to spend much money investing in their businesses because their primary asset is their well-established, good reputation
If you love Coke, you're not likely to switch brands. As long as Coke delivers the same high-quality product at the same reasonable price, you'll stick with it. Coke doesn't have to build new technologies or constantly create new products. It doesn't even have to spend a fortune on advertising. It has an installed, loyal, and ready base of buyers... and a large moat around its business, thanks to brand loyalty.
If you're prepared to hang on for the long haul, investing in capital-efficient companies with dominant brands is one of the simplest paths to great wealth.
Just ask legendary investor Warren Buffett...
This strategy has made Buffett one of the richest people on the planet.
For example, look at the huge stake that Buffett took in the iconic soda brand Coca-Cola back in 1988. At the time, he told shareholders...
We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
Warren Buffett is perhaps the greatest investor of all time, and he has a simple solution that could help an individual turn $40 into $10 million.
Warren Buffett spoke about one of his favorite companies, Coca-Cola, and how after dividends, stock splits, and patient reinvestment, someone who bought just $40 worth of the company's stock when it went public in 1919 would now have more than $10 million.
We know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today's money. Put differently, would you rather have an iPhone, or $10 million?
The dangers of timing
Yet as Buffett has noted continually, it's terribly dangerous to attempt to time the market:
"With a wonderful business, you can figure out what will happen; you can't figure out when it will happen. You don't want to focus on when, you want to focus on what. If you're right about what, you don't have to worry about when."
Investing for the long term
Individuals need to see that investing is not like placing a bet on black or red, but instead it's buying a tangible piece of a business.
It is absolutely important to understand the relative price you are paying for that business, but what isn't important is attempting to understand whether you're buying in at the "right time."
In Buffett's own words, "if you're right about the business, you'll make a lot of money," so don't bother about attempting the perfect timing. Instead always remember that "it's far better to buy a wonderful company at a fair price."
Business magazine Forbes ranks Coke as the world's fourth-most valuable brand. Without taking away anything from the company's management, Coke is a simple business. It made soda 100 years ago. It makes soda today. And it will be making soda in another 100 years. Sure, packaging and marketing campaigns change. But not much (if anything) has changed about the company's core product, Coke.
In 2013, Coca-Cola sold more than $46 billion in product. It operates on gross margins of around 60%, meaning it produced $28 billion in gross profits. And the thing we love most is it generated almost $8 billion in free cash flow. This is the amount of cash left after the company has paid out all operating and capital expenses. It's the number that doesn't lie.
As a result, between dividends and share repurchases, it sent roughly $8.5 billion back to shareholders... more than triple its $2.5 billion in capital expenditure. And the company has been treating shareholders this way for years.
This is a wonderful business. No other words can describe it. And it is dead easy to understand for investors.
Buffett spent about $1 billion on Coke shares in 1988 and 1989. By the end of 1989, the position was equal to 35% of Berkshire Hathaway's entire equity portfolio. Today, Berkshire's Coke position has grown to about a 9% stake in the company and has a market value of around $17 billion. And that doesn't count the massive dividends that Coca-Cola has paid to Berkshire over the years.
The concept is simple to understand.
We look for companies that consistently grow sales, generate huge chunks of free cash flow with high returns on assets, and reward shareholders by way of dividends and share buybacks.
Understanding capital efficiency gives you an edge... You'll be way ahead of almost every investor you know. And if you learn how to buy capital-efficient businesses at the right prices, you will be well on your way to accumulating real wealth through your investments.
KEY TAKEAWAY
Obvious, when it comes to investments, there are a lot of risks. Although, the biggest risk is...never to take risks.
WHAT S NEXT?
The Coca-Cola Company (#KO in trading platform) just released fourth quarter and full-year 2014 financial results on Tuesday, 10th of February, 2015, before the USA stock market opened (market opens at 14:30 GMT). Shares of the world's largest beverage maker rose 3.4 percent in premarket trading. U.S. sales rose 2 percent to $5.37 billion in the fourth quarter ended Dec. 31, accounting for about half of total sales. Analysts say U.S. consumers are still drinking less soda, but are paying more for it. Low gasoline prices and a brighter job market have encouraged many consumers to dig deeper into their pockets.
There can be opportunities in #KO, #KO-Pro CFD. You can BUY or SELL. The Coca-Cola Company CFDs by using your MetaTrader 4 terminal.
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