Typically, we will study from nice buyers – however what works for them could not essentially work for us. Take Warren Buffett for instance. A number of the shares he owns I perceive as companies. However others I don’t. So I might not spend money on them even when they’ve carried out brilliantly for the ‘Sage of Omaha’.

That’s as a result of I like to stay to what Buffett calls my ‘circle of competence’. In any case, placing cash into companies I don’t perceive shouldn’t be investing in any respect, however merely hypothesis.

Right here’s a easy, confirmed and compelling enterprise mannequin

A few of Buffett’s investments sit nicely inside my very own circle of competence. For instance, take his holding in Coca-Cola (NYSE: KO).

I feel the funding case right here is robust. The marketplace for tender drinks, together with water, is huge and more likely to keep that manner for the foreseeable future.

Numerous firms compete in that house. So what units Coca-Cola aside? It has distinctive aggressive benefits, together with iconic manufacturers and proprietary formulation. The corporate enjoys economies of scale, because of its massive international footprint.

Coca-Cola has additionally devised an attention-grabbing division of labour. Native bottlers (wherein it could personal a stake) are accountable for a lot of the sharp-end manufacturing, gross sales and distribution. (London-listed Coca-Cola HBC and Coca-Cola Europacific Companions are examples).

So Coca-Cola itself can give attention to model constructing and promoting syrups to these bottlers. That could be a leaner mannequin than making an attempt to do every thing and lets it give attention to the place its largest strengths lie.

It’s been an unimaginable funding for Buffett

No surprise Buffett likes the enterprise. Since ending constructing his stake in 1994, it has soared in worth – and he now will get over half of his authentic funding again yearly within the type of dividends alone.

In the case of dividends, Coca-Cola additionally has a superb monitor document. The enterprise mannequin throws off a number of spare money and that may assist robust dividends. Final week, the corporate introduced it will improve its dividend per share for the 63rd 12 months in a row!

Ought to I purchase the shares?

Nevertheless, though Coca-Cola has been a roaring success for Buffett, he has not purchased any shares within the firm because the final century.

I have no idea why. Possibly he desires to maintain his portfolio sufficiently diversified. One threat I see is that altering shopper attitudes to wholesome consuming may see long-term demand decline for a lot of forms of tender drinks, hurting gross sales and income at Coca-Cola.

However what places me off shopping for Coca-Cola shares for my portfolio is its share price. Presently, the corporate trades on a price-to-earnings ratio of 28. That’s greater than I wish to pay, even for a superb enterprise like this one.

Each investor is completely different and must make their very own determination. What works for Buffett is probably not the best selection for me.

In the case of his holding in Coca-Cola, I feel me shopping for the share may make sense – however solely on the proper price.

Buffett says he likes to purchase stakes in nice firms at enticing costs. Me too!

However for now, Coca-Cola is on my watchlist and I cannot be investing this 12 months, except the valuation turns into considerably extra enticing.