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Quote of the Day
“Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.”
-Warren Buffett in his 1996 Letter to Shareholders.
May 8th – This Day in Stock Market History
May 8th, 1886 – First day that Coca-Cola is sold. Coca-Cola was originally sold at Jacobs pharmacy in Atlanta, Georgia. It would average 9 sales a day for the next year.
Coca-Cola would not become a publicly traded company until 1919. For more info on Coca-Cola’s history, see our January 29th This Day in History, when Coca-Cola was incorporated.
Also, Coca-Cola would become one of Warren Buffett’s most famous investments. He made his initial purchase in 1988, we take a look at that purchase in more detail in our blog post here:
May 8th, 1901 – Shares of Northern Pacific Railroad continue to be bid up as J.P. Morgan and E.H. Harriman fight for majority of the company.
Shares, which traded at $110 just a few days prior, open at $155 and trade as high as $180 during the day. The general stock market sells off as rumors of corners in other stocks spread. The Dow Jones Industrial Average would close down 4.4%.
But this action would seem calm when compared to the action that occurs the following day, where shares would reach $1,000, on a day that is now known as the Panic of 1901.
May 8th, 1915 – One day after German submarines sunk the Lusitania, U.S. stock markets continue to decline. The Dow Jones Industrial Average falls another 3.6%, contributing to a 4 day streak that would see a 9% total decline.
May 8th, 1996 – Berkshire Hathaway announces new “class B” shares which will be offered at $1,110 per share (compared to the class A shares which were then around $34,000 per share). The class B shares would split 50-1 in 2010.
The original prospectus for the new B shares can be found here.
Source: Berkshire Hathaway 50th Anniversary book
Best May 8th in Dow Jones Industrial Average History
1931 – Up 3.71%, 5.53 points.
Worst May 8th in Dow Jones Industrial Average History
1901 – Down 4.4%, 2.41 points.
Read of the Day
Buffett had comments about the newly created B shares in his 1996 Letter to Shareholders
Our issuance of the B shares not only arrested the sale of the trusts, but provided a low-cost way for people to invest in Berkshire if they still wished to after hearing the warnings we issued. To blunt the enthusiasm that brokers normally have for pushing new issues – because that’s where the money is – we arranged for our offering to carry a commission of only 1.5%, the lowest payoff that we have ever seen in a common stock underwriting. Additionally, we made the amount of the offering open-ended, thereby repelling the typical IPO buyer who looks for a short-term price spurt arising from a combination of hype and scarcity. Overall, we tried to make sure that the B stock would be purchased only by investors with a long-term perspective. Those efforts were generally successful: Trading volume in the B shares immediately following the offering – a rough index of “flipping” – was far below the norm for a new issue. In the end we added about 40,000 shareholders, most of whom we believe both understand what they own and share our time horizons.
Also, from the Wall Street Journal in 2011: Baby Berkshires: A Very Brief History Lesson
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