The Coca-Cola Company has shown up to its desk every morning for one hundred and forty years. It produced $7.4 billion of operating cash in the last twelve months and spent $1.05 billion of that maintaining its bottling plants and distribution network. The remainder — $6.36 billion — is what its owners can either keep or have paid out to them. None of these numbers are in dispute. They were filed with the Securities and Exchange Commission in February. Anyone who wants to may verify them.

The market price of one share of Coca-Cola, as of this morning, is $78.42. This price was not set by the company. It was set by Mr. Market, an unusually moody business partner who appears at the door each weekday with a quote, sometimes high and sometimes low, and offers to either buy your interest or sell you another. He does not know what the business is worth. He has no view on its competitive position, no opinion on its prospects in India, no concern for whether Costco will continue to display two-litre bottles in the back-left corner of the warehouse. He simply has a mood.

When we run the protocol — Owner Earnings discounted at the long Treasury, faded to GDP, with the standard twenty-five percent margin of safety — we arrive at an intrinsic value of $88.74 per share. The buy price is therefore $66.55. Mr. Market wants $78.42. He is offering the business below its intrinsic value. He is not, however, offering it below the margin of safety.

This is the most common condition. Mr. Market is wrong, but not so wrong that we should act. He has spent most of the last seven years asking somewhere between fair and slightly-cheap for Coca-Cola. The business — the actual business, the one we can read in the cash-flow statement — has done what businesses of its kind do: compounded earnings at six or seven percent a year, paid out about three-quarters of those earnings as dividends, and otherwise behaved itself. The chart of intrinsic value over time is approximately a straight line tilted gently upward. The chart of Mr. Market's asking price is a straight line drawn by an excited child.

The chart of intrinsic value over time is approximately a straight line tilted gently upward. The chart of Mr. Market's asking price is a straight line drawn by an excited child.

The discipline of value investing is not, despite the cinematic version of it, the discipline of finding hidden gems. It is the discipline of doing the same arithmetic on the same business every quarter for years on end and waiting — without complaint, without reaching for explanations — for Mr. Market to have a bad enough day that the price falls below the buy line. Coca-Cola's buy line is currently $66. It was $58 three years ago. It will be roughly $73 in three years if the business continues to compound at the rate it has been. Mr. Market will, on some unremarkable Tuesday, be asking less than that. The only thing required of the patient owner, on that day, is the willingness to write a cheque.

We do not know when. Neither does anyone else. The recurring suggestion that someone doesknow when — that some quantitative model, some macro forecaster, some technician's pattern reader — has cracked the timing problem is responsible for more lost money in the long-term-investing community than any other single mistake. We watch Mr. Market the way one watches the weather: not to predict it, but to be ready when the conditions are favourable.

For now, on Coca-Cola, the conditions are not favourable. They are merely tolerable. Δ +13%. Pass.

— The editors