Tuesday, August 25, 2015

Dumb Luck

So yeah, investing in stocks does have quite a bit of 'luck' factor to it. There is some science (fundamental analysis, I don't believe in technical analysis, btw) to it, but still: a big chance-factor.

One nice characteristic of the stock markets is that you will always pay fair value. At any moment, it is priced according to what the market thinks of it, as a whole. This means that the process of buying a stock is very different from buying a used car. When buying a used car, the dealer can totally rip you off with a price that is too high by objective standards. When buying a stock, you will pay the price that the market says is fair.

So a funny thing happened in december 2012. I decided I should balance my portfolio with a more defensive holding, something safer than tech stocks. And since I wanted a big global evergreen company, I decided to go with Coca Cola.

Now, coca cola is traded as the 'KO' ticker on NYSE. However, I was too hasty in my research, and blindly bought the ticker 'COKE'. This is a ticker from Nasdaq, and is not 'The Coca-Cola Co' but instead, it is 'Coca-Cola Bottling Co. Consolidated.' The latter is a $1.4B company, and not the $4.4B company I intended to buy: I had bought the wrong stock!

I quickly found out that I had the bought the wrong one. But the stingy me decided not to waste two more transaction fees, and stick with it instead. Now, two years, 8 months later, I noticed something interesting:

The capital gains on the bottling company have sky-rocketed. It went up by a factor 2.3x no less! And when checking the real coca cola stock I had intended to buy: completely flat in all that time! Sure, there is a dividend discrepancy between the two, but still: no dividend is going to make up for those big capital gains.

So what to do next? Sell COKE, and buy KO? It would lock in my gains. Or keep going steady as before and do nothing? Interesting choices. I was first leaning towards doing nothing, but then noticed the huge difference in P/E. Currently, COKE is valued at a ratio that is double that of KO. So yeah.... maybe a switch is in order?