The type of security i like best

In light of turning 21 soon, I'll be uploading a somewhat detailed post of the typical aspects i like to see a company have if they are to be investment worthy. This post is to mimic Warren Buffetts article "The security i like best" which he wrote when he was 21. I'll title it "The type of security i like best."

Is Coca-Cola Amatil a good buy? (Part 2)

I've recently discovered some great news about our little (or shall i say big) friend CCL. I mentioned in my first post about how Pepsi have been cutting prices far below that of CCL. By doing so, CCL haven't been able to raise prices and with rising costs this is punishing their margins. However, what i didn't mention before was that CCL is a cost leader and Pepsi isn't. So, if Pepsi want to engage in a price-war with Coke they must be losing more money (or not gaining as much) as CCL. If this continues Pepsi might go broke. However, i don't think this is rational, so Pepsi will start rising prices again in the future. When this occurs, CCL will be in a position to begin rising prices again and thus alleviating the pressure on margins and earn more profits.

I did mention that CCL's problems are short-term and that this should be overcome in the medium-long term. In addition, i'm extremely confident in CCL's ability to continue to deliver in the medium-long term due to emerging markets.

As Buffett says "It doesn't matter what is happening, people will always spare 5 minutes to drink a coke."

Some thoughts of mine on Dividends

Stock market participants get very excited about dividends especially retirees who may depend on the regular influx. I mean, a 6% dividend yield is very attractive especially considering term deposit rates at the moment. However, something I've always considered is small cap stocks who may pay 0.5%. Out of curiosity, i sometimes check what stocks were trading at maybe 10-20 years ago and compare that price paid to an investor who bought in then, to the dividend yield now. Let's take CSL as an example. Picking some random point not near the trough, the stock was trading at around $8. Even though it has risen substantially previously, it's now trading at about $70 and paying a DPS of about $1.10 implying a 13.75% dividend yield. That's not adding on all the capital appreciation, dividends reinvested or anything like that. Right now, if you bought the stock at that time for that price, you'd be making 13.75% p.a. Which i don't think is very bad at all. And i tell you what, if you're fortunate to be in a position to have done what i used as an example above and earning 13.75% as a yield, i promise you'd be outperforming many funds (10 yr avg) if you netted out the costs.

And what can be attributed to a yield such as this one? A high quality business is the simple answer in my opinion. Thus, i believe it's fundamentally crucial to seek superior businesses.

So while some businesses are paying 6% at the moment,someone who bought into a small yield stock years before, might have a substantially higher dividend yield than most of the stocks at the moment.

While not related to dividends,an even better example might be Berkshire Hathaway. Many investors who saw the stock rise from $1,000 to $10,000 said "it's Warren Buffett, but still, I've missed out." I believe the 3 most dangerous words  in investing are "I've missed out". This is a dangerous following. Contrastingly, i believe the 3 most important words in investing are "margin of safety". This phrase is so useful to me, I even apply it to many of my life decisions.