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and then uh you know we're getting to the to finally the part about what I call the glot section so uh how many of you read uh the glotts uh paper that uh I think some of the some of the folks have read it right uh so that was a speech which Memphis Banger gave where they told him it was useless um so manga kind of inverts logic he so he says you know how do you create a two trillion dollar company with a two million dollar investment right how do you create that and and the way he does it is he says look uh let's go in 150 years he says in 150 years how to take 2 million to 2 trillion and so he says 150 years 2034 uh which is 150 years from when poke is formed he says that uh if there are seven billion humans and they're consuming the 64 ounces and then uh half of it is flavored and then one half of the flavor it comes to Coke and we are getting about two cents a serving let's say by then with inflation we're getting about four cents a serving you run on the numbers that Coca-Cola at that point is making about 117 billion a year in profit which would give you a market cap of 2 trillion and so he says that's how we get to uh that's how we get to 2 trillion and um and uh he says that uh so what are the things we do to create that two trillion he says first of all this guy glott who's setting up the Coca-Cola Company doesn't want to call it glott's uh flavored sugared water he wants to call it Coca-Cola because he likes that name better and so he he creates a name and he uh does a lot of stuff to promote the name and the second is he says in 1884 consumption of sugar and caffeine is well accepted in society you know we have coffee tea lemonade so we lose sugar and caffeine because people like that and using sugar and caffeine we're going to create uh this product and not just the sugar and caffeine what we'll do is we'll give it a color like the color of wine to make it look kind of high-end and we'll give it carbonation to make it like champagne okay so we'll put the sugar and caffeine and the the color of wine and carbonate it and now we've got a great product and then we sell it really cheap so that you know everyone can buy it and um and uh and then he said no we have a choice do we create a beverage that's hot you know like coffee or tea or beverage that's cold and he said well cold beverages can be consumed in a much higher volume than hot beverages and when you're kind of you know near the equator and really hot you could have an almost unlimited ability to consume cold beverages so he says it's a no-brainer you go with cold so he says you go you go with cold and then then he says now we go into the mental models of the way human brains are screwed up and so he says the first is the association tendency which is that you know put it in places where people are happy because when people are happy and they see Coke then they associate uh happiness with Coke and and then we finally get to our next slide which is my favorite slide which is uh which is the the Maryland slide right so the association tenancy is if Marilyn's drinking it then definitely I want to be drinking it too right and uh and so the association tendency what Coke did in all its ads for the longest time and even now is they associated with celebrities right so in India they'll they'll pick some other top Bollywood actresses and the same thing here they'll they'll put these people in because the association tendency uh humans uh kind of do very well with that and um and then you know the the social proof tendency of humans is another mental model which is you know monkey see monkey 2 which is that you know when we see other people drinking Coke we want to drink Coke too and so show people having a good time with coke uh and and all of that and um and then he says you know do it both ways uh do it with uh fountains and do it with bottles uh and then he says another thing we would do with the glots uh beverage company is that we would uh uh we would we would basically create this Aura around secrecy so you know people think there's something unusual about Coke because the formula is secret it's in the vault in a bank and quite frankly the the secrecy means nothing because he says that eventually with food science going where the way it was going everyone would figure out how to make something close to Coca-Cola but by the time they figure it out we would have had brand and other things uh come in which would which would help us kind of keep the competition at Bay and he says the food chemistry that helps our competitors make a product like ours also helps us by reducing the unit cost you know like like they went in the U.S from sugar to fructose which is a lot cheaper and they just made the whole all their efficiencies in in how they how they got there and then you know then he goes to Jacobi inversion which is you know what not to do you know what are the things that you don't do to get to the two trillion so he says the first thing that you don't do is avoid losing half the brand name so you know the Coca-Cola brand name uh has two parts the Coca and the cola right and he says don't lose either part of it if anyone came up with anything called Cola soon and take them out and so he said that in a in a in an ideal world he would have made sure there was no other Cola they could call it whatever else you know glotts bottled water or whatever or carbonate whatever but no Cola right so that's the first thing he said you wouldn't lose half your brand name you would avoid Envy by basically having a standard great product at a great price which they did and then the final thing he said that you know don't change the flavor even if someone comes up with something better keep the flavor because it's not about the flavor it's about the brand and that brings us to the Cola Wars which very few of you are familiar with how many how many of you are familiar with the Pepsi challenge yeah this usual cast of characters except you how do you know about the Pepsi challenge okay all right good uh so some of us lived through the Pepsi channel did you take the Pepsi challenge all right there you go so basically Pepsi had a problem in the in the mid 80s they had a problem they knew that people preferred Coke by a huge margin to Pepsi by a like a two to one margin and they they knew that their brand was inferior you know if if Burger King offered Pepsi and not Coke then people would not think of Burger King as use as well so every way they had to Discount stuff and all these things was really hard for them so John Scully before he went to Apple you know he became the one who went to Apple and then out to three jobs so before he went to Apple John's Kelly was the chief marketing marketing officer of Pepsi so he was brilliant he said how do I take out Coke he said the way I take out Coke is I take away the brand and the way I take away the brand name is I ask consumers to do a blind taste test and in a blind taste test where you so you know if you put in front of someone a Coke and a Pepsi they'd go for the coke because of all that conditioning for the decades but now if you take it with a brand and you just give those you know those tasting cups um and then have them tasted well the Pepsi is sweeter it actually tastes better right so in the blind taste test people say oh I prefer this one then they'd show you that it was Pepsi right and so they started taking market share and Coke got rattled so goizer and Theo who were part of coke at that time they got freaked out they said you know basically these guys have figured out that our product is inferior and so what they did is they came out with new Coke and New Coke was sweeter and it was better than Pepsi and there was a major uproar right so all the die-hard coke guys were horrified that how can you change the formula I mean it's all about the formula I want Coke I don't want new Coke right so there's this huge Fiasco that now they had they had messed with the family crown jewels right they took away the the one thing that was there which was that secret formula and all the things about the secret formula in reality Coke had changed this formula many times but they never told the public that they changed the formula right they just did it quietly this was very visible they called it New Coke and there was a huge backlash and then they realized the Coca-Cola Company realized that they screwed up so then they introduced classic Coke okay so then there was New Coke and classic Coke you remember that we had both right that was even more confusing okay and then they finally realized we got to kill this whole thing go back to just Coke and that's what they did they went back to only Gogan they survived that so uh so what what Munger says is that look this essay I wrote about taking 2 million to 2 trillion he says in reality the company started in 1884 and by 1896 12 years after they started they had no earnings and they had 150 000 in total assets so the much less than 2 million they started it he says they lost half their their brand name right so they were not able to protect the cola part of The Branding they lost that and they also screwed up with uh the Envy the Envy of Pepsi and they went to New Coke and all of that right so they did all these mistakes and uh and they also had uh what they did I think in 1900 they didn't think bottling was going to be that big they thought bottling is kind of a side show so they signed these agreements with these bottlers which fixed the price of syrup permanently into the future so like in 1900 they said we will give you syrup at whatever cents per pound for the next hundred years fixed price okay uh completely destroys the model because then sugar went Sky High and they started losing money so then they're telling the bottlers we can't give it to you they said no you have a contract and so then they had to battle the bottlers and finally they got some some leeway from that so they made that mistake and then what they had done is the the bottling rights what they had done originally when they gave bottling rights it was a day's horse ride so the way they set it up was that they looked at how far a horse could go on a day and a back and that's how they define the territory of a bottler okay and that didn't make sense once you got to automobiles and and there so so first they had very big territories because Coke started expanding so they wanted to reduce those territories the bottlers didn't want to give that up and the second is that they had some many useless bottlers right so these these bottlers I mean this is the license to print money you got you got a monopoly in an area uh you got the Coke product it's gonna sell and so you don't need to be that great a businessman and so they had to really kind of go through donkey or a lot of work where they brought back a lot of bottlers and did all kinds of things to to get their their model back but in spite of all that uh Coke from 1884 till now with all the dividends they've given out they're now at a uh manga manga when he gave the speech the market cap was 125 million 18 in 1996.
so he said if Coke's market value Grows by about seven and a half percent a year you'll get to 2 trillion from 96 to 2034 and if you go to today of course 96 I think it was an inflated uh multiple if you go to today Coke is at 190 billion to get to 2 trillion by 2034 you would need to be at about 14 and a half percent a year I'm not sure that do that but the other thing that could happen by that time is since we get these Cycles in stock market you might have a 30 multiple on the company you know Coke was sitting at a 40 multiple in 1999.
so you there's a chance you might get some crazy multiple at that time and that might get you to uh to the two trillion so um so basically what I wanted to just say is that um use you can see the work that Warren and Charlie did so usually the thing is one is they get a little bit of information Edge because they're willing to dig deep you know they're willing to read a lot and whatnot uh which most people aren't willing to do the second is where they get a lot of Advantage is the synthesis you know when they read what are they kind of extracting out of that model and the third is that they understand that when you have multiple multiple models into playing with each other I mean when you put a great manager like goizueta on top of a great business uh you just get phenomenal returns I mean those are those are just exceptional uh in terms of what ends up happening uh is great business with a great manager and then we get to some of these other nuances about personal space and all these other things about brand and and such uh you get to uh you get to kind of these loser effects so in the in the investment business I think that um this is the Holy Grail you know this is kind of when you get to this level of analysis on on a business uh you got it you know and then then uh then then you got it there and and so the key is to make very few bets uh make very infrequent bets and uh and when when seven moons line up you uh uh you bet big and uh and Sergeant the rest of the time you don't do much so so with that we'll uh open up any questions or comments you guys have
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