Procter and Gamble (NYSE: PG)
A true story:
In 2009’s CFA Global Challenge at Omaha, Warren Buffett was a surprised guest on stage for hundreds of finance college students. He was asked why he bought Gillette> “When I was shaving with Gillette one night before I went to bed, all of sudden I realized that men tend to stick to the same product that they like, even it is an unexciting razor.” “After that, I was lying on bed and thinking about how women use the same brand of razor to shave their legs, I got so excited that I can’t go back to sleep.”
Apparently, that was the night Buffett decided to buy Gillette.
That being said, Procter and Gamble also makes shavers and other unexciting household products. Since 1970, PG has generated 1165% return to its shareholders, doubled to S&P’s 531%.
Berkshire Hathaway (NYSE: BRKA)
Nobody will say that BRKA is a sexy stock or Warren Buffett is a sexy man. Some of Berkshire’s “more sexy” companies include Burlington Northern Santa Fe Corp, Dairy Queen, Fruit of the Loom, GEICO, John Deere, Costco, Kraft Heinz, Precision Castparts, and UPS.
That being said, investing in Berkshire is investing in Warren Buffett who is known to only invest in a “simple and understandable business” with “favorable long-term prospect,” and always “buy the business at a discount to intrinsic value.” The Oracle has to be the only disciplined one who can execute the investment tenants diligently over a 50-year period. If you are a loyal investor, Berkshire has returned you 1,826,163% between 1965 and 2014, an annual return of 21.6%, compared with 9.9% S&P 500 return.
Altria (NYSE: MO), Constellation Brands (NYSE: STZ), Northrop Grumman (NYSE: NOC)
In Episode 40 of the HBO series “The Sopranos,” Anthony “Tony” Soprano, Sr., played by James Gandolfini, asks his right-hand man Silvio Dante (by Steven Van Zandt): “Sil, break it down for ’em. What two businesses have traditionally been recession-proof since time immemorial?” “Certain aspects of show business and Our Thing,” Sil replies. For those of you not familiar with this HBO series, “certain aspects of show business” was the adult entertainment in Tony’s Bada Bing Club. “Our Thing” was the organized crime which exploits the vices of frail humanity.
While sin stocks outperformed unambiguously, some investors still hate them! Many individual investors associate a firm making a “bad” product to a bad firm. They may not be willing to own the stocks because doing so would conflict with their values. To some, avoiding even the appearance of impropriety, perceived a failure to conform to social standards, is more important than making money.
That being said, since 1970, a cigarette maker, Altria has produced 8856% to its shareholders, compared to the S&P 500’s 2419%. For the last 10 years, a liquor maker, Constellation Brands has returned 537% to its shareholders, compared to the S&P 500’s 62%. For the last 10 years, a defense company, Northrop Grumman has produced 265% to its shareholders, compared to the S&P 500’s 62%.
Coca Cola (NYSE: KO)
After 2016’s infamous Berkshire Hathaway’s annual shareholder meeting, Warren Buffett was asked by a CNBC reporter, what he, one of the largest shareholders of Coke Cola (NYSE: KO), thinks of the mountain of complaints that Coke has been a major contributor to the high obesity in the country. Buffett, obviously embarrassed by the question, replied, “Well! I have a Cherry Coke and a donut every morning. If I have a twin brother growing up with me and he hasn’t (eating a Coke and donuts), I bet I look better than he does.”
That being said, since 1962, KO has produced 7043%, compared to S&P 500’s 3291%.
At the age of 51, James Gandolfini (Tony Soprano) died of a heart attack on June 19, 2013.