In this segment from the Motley Fool Answers podcast, Alison Southwick and Robert Brokamp explore the megabagger returns that accrued to a small farming town from getting in early on Coca-Cola in the years following its 1919 IPO. The town's banker was a firm believer in the soft-drink company's ability to deliver over the long haul, and as a result, many of his customers ended up millionaires on the back of that one investment, held through thick and thin. And when we say megabagger, we're not exaggerating.
A full transcript follows the video.
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This video was recorded on Aug. 29, 2017.
Alison Southwick: Earlier this month we received a message from Eric in Knoxville and he wrote that he's a native Floridian like Bro...
Robert Brokamp: That's right.
Southwick: ...and how his brother had moved to Quincy, Florida, in the Panhandle last year. [His brother] was telling him this story of the Quincy Coca-Cola millionaires and how the money still permeates through the town. It's a fascinating story if you haven't heard it. So, Bro, had you heard it?
Brokamp: I had not, so I began looking into it and I agree. This is actually kind of an interesting story. I will say that like many things that you find on the internet, it's not necessarily all true, so I read tons of articles about this and some of [them] had conflicting information and conflicting numbers, but the kernel of the story is definitely true, and I think it's pretty fascinating.
So, it starts with Coca-Cola. [Coca-Cola] comes public in 1919 in Quincy, Florida, which is now a town of 8,000 people, so it was even smaller back then. It had a banker who had some connection to the company and it's a little unclear of what the connection was, but he was known around town as "Mr. Pat."
When the company came public, he snapped up a bunch of shares, but he also encouraged the people in town to buy as many shares as possible, and basically his premise was regardless of what's going on in the economy and regardless of what's going on in someone's finances, they always find a way to come up with a nickel to buy a Coke, which is how much Coke cost back then.
Southwick: Also because it had cocaine in it, right?
Brokamp: At that point it did not.
Southwick: Sales are helped when you're chock-full of cocaine.
Brokamp: That's right. It didn't at that point. So, it comes public in 1919 at $40 a share. He buys a bunch ...
Southwick: That seems very expensive for a single share back then.
Brokamp: Right. Now the key to that is, as the town's banker, he would lend money to people to buy it. Back then it was mostly a farming community, and largely tobacco. They made the light tobacco that would go around to make cigars.
Farmers would say, "I need to borrow $2,000." He'd say, "I'm going to lend you $4,000, but you've got to agree to invest half of that into Coke." And so what happens is by the late 1930s, according to some reports, on a per-capita basis Quincy is the wealthiest town in America because of all these Coca-Cola millionaires. The numbers vary depending on the time frame and which article you read. Some say there were at least 24 millionaires. At least 67. Some over 113. Regardless, it's a fascinating story, and one of the keys of it was that during the Great Depression, when the economy was in the tank, people were living off the dividends from their Coke.
And the same with recessions that came afterwards. In other words, Coke kind of sustained the town during the tough times. And if you go to Quincy now, you will see that. First of all, there's a big mural of Coke on the side of one of the jewelers, but some of the Coca-Cola millionaires use their money to do things like fix up a theater. Buy a Girl Scout camp. Fix up a church. Things like that.
As for the banker himself, Mr. Pat, when he died in 1940 he had 18 children by two wives and he left each of them $1 million in those dollars, which today would be worth almost $18 million. According to a Bloomberg story from the 1990s, the residents of Quincy owned 7.5 million shares which then had a value of $375 million.
And you'll read other stories about at one point Quincy accounted for about two-thirds of Coke shares and that Coke, which was headquartered in Atlanta and about four hours from Quincy, would send a courier down with proxies. Now there apparently is an official historian at Coke and he's cast some doubt on a lot of these things, but he said in terms of a per-capita basis, there's no question that something extraordinary went on there in Quincy.
Now, one thing we do know for sure in terms of how much someone made in Coke is that we know what happened to SunTrust banks. So SunTrust is a regional bank also headquartered in Atlanta. It helped bring Coke public in exchange for $110,000 worth of stock. They held on to that. They didn't start selling until 2007 and then completed the sale in 2012. According to a 2012 article in Fortune, their pre-tax gain on all those shares was $1.9 billion. According to the CEO of SunTrust, their return was 2 million percent on their investment, which is pretty nice. In fact, if you look at a share of Coke if you bought it back when it went public in 1919, it's gone through several splits. That one share would have now turned into 9,200 shares. If you reinvested all the dividends that $40 investment would be worth over $10 million today.
Nathan Hamilton: So the moral of the story is put all of your money in one stock?
Brokamp: That's right! Thank you!
Southwick: I was going to say...
Hamilton: That's my takeaway. That's the fun, right?
Southwick: This could just as easily gone the other way, right? Mr. Pat could have been nefarious and been like, "Oh, see, I've got a great investment for you." Studebakers, elixir, and whatever.
Brokamp: So, that is very funny that you bring that up. Because right here in my notes I have one of the lessons, and whenever we tell these types of stories, it has survivorship bias. So, I looked at the Dow Jones, which at that point did not quite have 30 stocks in 1920, and you look at the companies in there. So one of them was Studebaker. American Can Company.
Southwick: That name just sounds old to me.
Brokamp: Baldwin Locomotive. Central Leather Company, Anaconda Copper, and, of course, as we all know, that was the year American Beet Sugar was dropped from the Dow.
Southwick: A crazy year.
Brokamp: So I don't know what happened to all those companies, but there might be some other town in Florida where everyone bought tons of Anaconda Copper out in Florida and they've lost all their money. So, I think the lesson, here, is not necessarily put it all in one stock. The lesson here is the power of long-term investing.
Brokamp: There are several anecdotes from people in the town that said the thing is we just never sold. In fact, one was by the Chamber of Commerce with a county named David Gardner [of course, not our David Gardner]. But people just held onto their stock and lived off the dividends. That's really the power.
And also, how the power of this money was created for generations. I mean, the original banker, like I said, died in 1940. His daughter just died a few years ago and had enough money to do so much for the town they named a road after her. So, to think not only long term for yourself, but generationally, and how much you can do for your family, and then how much your family can do for the community.
Southwick: It's a legacy.
Brokamp: It's a legacy.
Southwick: The Coca-Cola legacy.
Brokamp: That's right.