I haven't been paying attention to the markets
recently. Someone told me he heard on TV or somewhere that
Buffett has already or is considering buying some Pepsi.
My friend told me it was because Pepsi is now doing
what Coke did many years ago -- sell off its
capital-intensive bottling operations. In addition, Pepsi's
decision to sell off its fast-food operations a while ago
was a good decision. Anyone see anything about
Buffett saying anything about Pepsi lately?
think Buffett buying Pepsi sounds plausible:
He used to drink Pepsi
2) Pepsi sold off its
fast-food operations and selling off its bottling
3) Pepsi's stock price has been tanking
What do you think?
Pepsi is the biggest steal in the S&P500 right
now. Almost totally immune to economic forces such as
Asia, and with two of the dominant brand names in the
U.S. in Pepsi and Frito Lay. Regardless of that fact,
I know there are some things more important to WEB
than money, and one of them is the trust and respect
of Doug Ivester and the rest of the people at Coke.
Buying Pepsi is out of the question for WEB in my humble
He has said many times that he'll pass up a good
deal if he doesn't feel right about it, even if there
is easy money to be made. This fits into that
I think he would, if he thinks it is a good buy.
I don't think he would have to resign from the
board, unless somehow he gained a major stake it it
He has shown he doesn't mind holding
stocks of competitors, e.g., Dairy Queen &
(Although he sold some MCD, he stated at the annual meeting
he still has quite a bit of it, not enough to meet
the $750MM reporting criteria for the annual report)
i'm definately not an expert on the snack food
business, but i would assume that frito lay would compete
with all other snack foods (i guess those you would
munch on while watching sports or a movie or something)
such as popcorn, nachos and salsa, store brand nachos
and chips and stuff like that. as munger said in an
interview with morningstar, to understand coke it is
important to understand pepsi and cott - especially cott.
why did munger feel store brands to be a threat?
store brands proliferate on price rather than on
in addition, unless somebody can tell me "the return
on equity for the fountain business is 24% and the
return on equity of the snack food business is 26%,
therefore the average return on shareholder equity for
pepsi is 25". I have no idea if frito lay is hurting or
helping pepsi. it could equally be that the fountain
business is earning the bulk of pepsi's return. if that is
the case, why is pepsi in the snack food business
the toronto investment
A very strong brand makes earnings more
predictable, at least in most industries, and so commands a
higher p/e due to discounting future earnings with a
lower discount rate. Anyone who doesn't agree with
that, prove me wrong.
Where are you getting your numbers? Take a look
at Value Line, not the Yahoo "profile" or whaerever
you're getting the numbers.
Second, you are
correct that brand equity does show up in earnings.
However, what makes a company with brand equity be valued
higher is that you discount its future earnings back at
a lower discount rate because the brand recognition
makes earnings much more predictable. As an earlier
post mentioned, it doesn't make them predictable
forever, but in some cases almost.
As for the Frito
Lay thing, I don't have the Frito return on equity in
front of me. I would be very surprised if it isn't far
greater than the average American firm's ROE because of
its strong brand name and resultant pricing power.
Total capital is a number which includes all capital
employed in the business. Debt+equity=total capital.
Campbell's is doing a wonderful job if you use that as the
I just came in on the brands discussion so you
might have covered what I have to say. It seems to me
that powerful brands help the owning company in two
respects - 1) higher sales because of being so
recognizable, and 2) higher margins because customers are
willing to pay more. For example, if we set off across
country traveling and lunch time comes we are more apt to
stop at McDonalds, Wendy's, etc. because we know what
to expect. We would probably be reluctant to stop at
Joe's Dinner(about which we know nothing) and run the
risk of wasting time and money on a bad meal. Even if
it cost a little more at McDonald, Wendys, etc. most
people would opt for the known brand.
probably the best known brand worldwide is Coca
There are probably many places where coke has to lower
it prices because of competition from Pepsi, Sams
Choice, etc., but there are many places particularly
overseas where there is very little competition in the
soft drink market. There coke can command a much
higher price. Of course, being a dominant brand should
lead to economies of scale. Coke sells more soft
drinks (it sells about half of all the soft drinks sold
worldwide), so it must be able to produce an 8 ounce serving
of drink cheaper than other competitors who sell
Anyway that is my thinking.
I am personally full of respect and admiration
for Mr. Buffett, BUT it does not mean that I will
always to the same things as he does.
two things that make me act differently:
personal finances are different from Mr. Buffett in two
1a) My asset allocation is
1b) My risk tolerance is different
2) I do not
have the same universe of investment opportunities
open as Mr. Buffett does.
For example, I
personally could not merge with General Re and change my
asset allocation tax free.
Or, an investor would
not have 100% of his savings invested in stocks if a
50-60% drop would leave him too exposed. Whereas the
rich Mr. Buffett could do just that because he is very
rich and his personal lifestyle is cheap compared to
what he owns.
So, my conclusion is, it is not
illogical to invest differently from Mr. Buffett even if
you think that he is investment God.