A single share

Anyone who invests regularly will be familiar with the concept of compound interest and how it makes good money over time. One stock that illustrates this quite well is Coca-Cola. The company went public in 1919, when a single share cost 40 dollars.

40 dollars may not sound like much, it’s just over 400 Swedish kronor, but remember that one dollar has lost about 94% of its value since 1919. One USD in 1919 is equivalent in purchasing power to about USD 17.67 today, an increase of USD 16.67 over 104 years. The dollar had an average inflation rate of 2.80% per year between 1919 and today, resulting in a cumulative price increase of 1,667.00%.

That means today’s prices are 17.67 times higher than average prices since 1919, according to the Bureau of Labor Statistics’ Consumer Price Index. A dollar today buys only 5.659% of what it could buy then.

The inflation rate in 1919 was 14.57%. The current year-on-year inflation rate is now 3.18%. If this figure holds, $1 today will be equivalent to $1.03 in purchasing power next year.

Comparison with the S&P 500 Index

The average inflation rate of 2.80% has a compounding effect between 1919 and 2023. As mentioned above, this annual inflation rate is compounded to give a total price difference of 1,667% over 104 years.

To help put this inflation in perspective, if we had invested $100 in the S&P 500 index in 1919, our investment would be worth approximately $3,100,766.39 in nominal terms in 2023. This is a return on investment of 3,100,666.39 percent, with an absolute return of $3,6600, over $3,660. of the original $100.

These figures are not adjusted for inflation, so they are considered nominal. To evaluate the real return on our investment, we need to calculate the return taking into account inflation.

The compounding effect of inflation would account for 94.34% of the return ($2,925,284.42) over this period. This means that the inflation-adjusted real return on our $100 investment is $175,381.97. You may also want to factor in capital gains tax, which would reduce your real return to around $149,075 for most people.

Investing in the S&P 500 Index, 1919-2023

Let’s take a closer look at what would have happened if you bought a single share of Coca-Cola when it went public in 1919 at a price of $40.

In 1927 the company made a split, one old share became two. This split was followed by a new one in 1935, where one old share yielded four shares. Your initial share would now be eight shares.

It would then be 1960 before the next split, this time with one old stock becoming three, and your portfolio would be 24 shares of Coca-Cola. In both 1965 and 1968 Coca-Cola made splits, one old share for two old ones, and the shareholding in the example would be 48 and 96 shares respectively after these splits.

In 1977, this was followed by a split where one share became two, and the shareholding in this example amounted to 192 shares.

Once again, it was a long time before the next share split took place. In 1986, one old share became three new ones, so our only share in Coca-Cola was now 576 shares.

Warren Buffett bought shares in Coca-Cola in 1988, making it one of Berkshire Hathaway’s largest holdings. The venture marked one of the largest bets on a public company by the legendary investor. After a number of stock splits, Berkshire Hathaway is said to receive more in dividends each year than the stock was once purchased for.

In 1990 it happened again, this time a split where one old share became two new ones. The same thing happened again in 1992 and the first share has grown to 2 304 shares in 1992. In 1996 the same thing happened again, and the number of shares increased to 4,608 shares. The last split took place in 2012, increasing the number of shares to 9,216.

The annual dividend for what was a single share in Coca-Cola and is now 9,216 shares, according to BeanInvest, amounts to 15,482 dollars, about 155,000 kronor. However, they have forgotten to indicate how much dividend the single share of Coca-Cola had paid since its inception.

The total value of these shares is 557,496 dollars, or almost six (6) million Swedish kronor. Coca-Cola is traded on the New York Stock Exchange (NYSE) under the symbol KO.

This means that shares in Coca-Cola can be traded through most Swedish banks and internet brokers, such as
DEGIRO
,
Nordnet
,
Aktieinvest
and
Avanza
.