Pemberton’s French Wine Coca and Other Investment Adventures

Pemberton’s French Wine Coca and Other Investment Adventures
A Coca-Cola logo is seen in a restaurant in Washington, on May 1, 2016. (Karen Bleier/AFP via Getty Images)
James Dale Davidson
“Despite his notoriously controversial personality, Detroit Tiger legend Ty Cobb holds the highest career batting average of any player in MLB history at .366. In 24 seasons (22 with the Tigers), Cobb amassed 4,189 hits, scored 2,245 runs, and stole 897 bases. Cobb won 11 batting titles, one MVP award, and was one of only five players that were inaugural members of the Baseball Hall Of Fame in 1936.
“When he retired in 1928, Cobb had earned an estimated $491,233 from baseball, a sum that would be worth $7.44 million in today’s dollars. However, by the time Cobb died in 1961, he held an investment portfolio worth $12.1 million, roughly $104.8 million in today’s dollars,” wrote Wayne Duggan in “Ty Cobb: The Greatest Pro Athlete Investor Of All Time?”

Cobb or O’Neal?

Wayne Duggan makes a strong case that Ty Cobb was “the Greatest Pro Athlete Investor of All Time.” I have copied a summary of his argument above. But note, Shaquille O’Neal may be in the running with Ty Cobb.

Among many headline investments that have multiplied O’Neal’s net worth into the stratosphere, he had the foresight to make a pre-public “angel” investment in Google. Wow. That’s just one example of O’Neall making good use of the $292 million he earned in his basketball salary.

Ty Cobb was long dead before anyone thought of Google. But he made millions from a successful spin-off of Colonel John Pemberton’s “French Wine Coca," afterward known as "Coca Cola," by an industrious Georgian.

By 1921, Ty Cobb was the best-paid player in baseball history, earning $25,000 a year … (In that year, the average professional baseball player earned $5,000). He earned more than most and multiplied his wealth by shrewd investment. One of Cobb’s headline investments was an early stake in United Motors — before it was renamed “General Motors.” (He was playing in Detroit). But perhaps Cobb’s most notable investment was his purchase of 300 shares of Coca-Cola Co when it was still a private company in 1907. (He leveraged his status as “The Georgia Peach” to buy into Coca-Cola when it was still a private company—just as he utilized his connection with Detroit to buy GM).

Over the next 20 years, Cobb grew his Coca-Cola investment to 24,000 shares. In addition, he purchased three Coca-Cola bottling plants—in Santa Maria, California, Twin Falls, Idaho, and Bend, Oregon.

More of the Ancient History of Coke

Pemberton’s “French Wine Coca” was an American knock-off of a French invention—an alcoholic beverage combining wine with cocaine. One popular brand was Vin Mariani, developed in 1863 by French-Corsican chemist and entrepreneur Angelo Mariani. It was banned in 1914 because of its cocaine content and was revived a few years ago.

Pemberton’s French Wine Coca began life as a patent medicine—“the great and sure remedy for all nervous disorders.” Among other things, Pemberton’s French Wine Coca was marketed as “a most wonderful invigorator of the sexual organs.”

In an 1885 interview with the Atlanta Journal, Pemberton claimed the drink would benefit “scientists, scholars, poets, divines, lawyers, physicians, and others devoted to extreme mental exertion.”

At about that time, former President Ulysses Grant had become a partner in a financial firm that went bankrupt. It was a time of bad news for Grant. Having lost his business, he learned that he had throat cancer.

Facing financial ruin and lacking the investment talents of Ty Cobb or Shaquille O’Neal, Grant embarked on a desperate race against death to complete a memoir to pay off his debts and provide for his family. Grant was an avid user of Pemberton’s French Wine Coca to keep himself going, as it seemed to help mitigate his throat pains.

Grant completed his memoir and died almost immediately. He finished the last page in July 1885. His effort earned $450,000, the equivalent in today’s purchasing power of $13,337,814.43. That was enough to provide for his widow and children.

President Grant’s experience with Pemberton’s “French Wine Coca” might have been a marketing plus. Still, Pemberton faced the obstacle of the temperance movement, a somewhat different obstacle than Vin Mariani faced in France.

When Atlanta and Fulton County enacted temperance legislation in 1885, Pemberton rushed to develop a non-alcoholic version of his famous product. The result was an early version of Coca-Cola. It was introduced to the public at Jacob’s Pharmacy in Atlanta on May 8, 1886.

The temperance legislation did not affect the inclusion of coca, which remained in the formula until early into the 20th century when it was removed under the orders of then-The Coca-Cola Company President Asa Candler.

Coca leaf extract with the cocaine removed remains one of the flavors in Coca-Cola. In all probability, Coca-Cola continued to contain psychoactive elements from the coca-leaf extract until 1929, when an enhanced scientific process for removing them without affecting the taste was perfected.

Despite Atlanta’s Temperance legislation, production of French Wine Coca continued until Pemberton died in 1888; in 1887, French Wine Coca sold 720 bottles a day.

But the production of Coca-Cola proved to be a drag on Pemberton’s finances. Only about nine servings of the soft drink were sold daily. Sales for the first year amounted to a total of only about $50. Pemberton’s costs for creating the drink were over $70, leaving him with a loss.

That is the proximate reason that Pemberton sold the Coca-Cola recipe to fellow Atlanta pharmacist Asa Candler. Candler paid $2,300 for Coca-Cola—an infinite multiple on Pemberton’s earnings on the product.

Still, Candler’s investment proved to be shrewd. His family sold most of their shares in 1919 for $15 million (equivalent to about $250 million in today’s money) in cash and $10 million worth of preferred stock, paying a dividend of 7 percent yearly.

If you ever held an original Coca-Cola bottle from the 1890s in good condition, you could probably sell it to a collector for $80,000.

That hints at what a shrewd investor Ty Cobb proved to be. When he died in 1961, he left an estate worth more than $100 million in today’s dollars.

If he had managed to live until 1998, he would have been a billionaire holding the same portfolio.

What lessons can you draw as an investor from transforming Pemberton’s “French Wine Coca” into a company with a market cap of $281.5 Billion? I see several takeaways.

There can be a large element of luck in a company’s progress over generations. Pemberton’s original “French Wine Coca” was transformed several times as the alcohol and the cocaine were removed. But Pemberton’s flavor profile proved to be a winner when Asa Candler promoted it. I think it unlikely that anyone could have had the foresight to accurately realize how much “French Wine Coca” was destined to be worth. In that sense, investing is akin to gambling at some points. My late father used to say of investors he knew, “If you are so rich, why aren’t you clever? Be both. Be lucky, as well as innovative.

Second, savvy investors who enjoy luck can earn outsized returns by investing early in the life of a transformative company. Shaquille O’Neal made millions with his pre-public “angel” investment in Google. Equally, Ty Cobb transformed himself from an uneducated Georgia farm boy into “one of the savviest and richest investors on the planet,” according to Celebrity Net Worth. The report, “his investment portfolio included lucrative early stakes in companies like Coca-Cola and General Motors that were large enough to be worth the modern equivalent of hundreds of millions and potentially billions of dollars today.”

Third, it pays to take advantage of what you know. Ty Cobb showed that. He leveraged his status as “The Georgia Peach” to buy into Coca-Cola when it was still a private Georgia company—just as he utilized his connection in Detroit before 1918 to buy what turned out to be GM stock.

James Dale Davidson is a highly acclaimed economist and financial forecaster who has cemented his legacy through his renown investment newsletter Strategic Investment, which has been in publication since 1987. One of Davidson’s biggest fans include billionaire Peter Thiel, who says Davidson inspired him to start PayPal and cited Davidson as “his favorite stock picker.”