Warren Buffett probably talks about his investment in The Coca-Cola Company more than any other.

Mr. Warren Buffett probably talks about his investment in 

The Coca-Cola Company more than any other. 

From Equitymaster.com

Coke had been dominant for decades. It had an iconic brand that consumers loved. It had a highly efficient global distribution network, a highly profitable business, and a strong management to boot. Its fundamentals ticked all the right boxes. 

The 1987 market crash brought Coke stock down, and that was the clincher. Buffett loaded up...and how. 

He invested about US$1 billion in early 1988. This meant snapping up 6.2% of the company's shares, making it a star in Buffett's portfolio and his largest holding. 

What followed over the next ten years has become legend. From US$2.4 at the start of 1988, the stock shot up to US$44 by mid-1998. 

For other investors, Coke's allure wasn't just the massive gains but Buffet's conviction and the extraordinarily large position he took in this one stock. 

The gains in the stock coupled with his big allocation to it meant that Coke turned out to be a game-changing experience for Buffett. 

A Cherry Coke brandishing Buffett left no opportunity to tell tales of how wonderful the Coca Cola Company was. And reams of books have been written about his suave investment in Coke. 

And it was. Until Buffett decided, perhaps due to size constraints, to adopt the 

'buy-and-hold-forever' mould of investing. This implicitly meant ignoring 

subsequent valuations, whatever they may be. 

During 1998-2000, Coke touched valuations of almost 100 times price to 

earnings. Buffett ignored. 

Coke didn't hit those levels again for a good part of the next two decades. 

Today, the stock is still at US$45...where it was in 1998 (and only very recently 

has it managed to claw back to this level). This is a compounded annual gain 

of about 10.5% since 1988. 

The chart shows the perils of buying and holding forever irrespective of valuations. 

For even when the fundamentals of a company remain solid, the risk-reward odds for an investor constantly change along with the changing valuations of the stock. 

Keeping a stock in your portfolio with a blind-eye towards its prices could lead to huge opportunity costs for an investor. 

Even long-term investors need to keep an eye on valuations and reassess the odds from time-to-time. 

Editor's Note: Our Benjamin Graham-inspired service Microcap Millionaireskeeps an eagle-eye on valuations and is quick to book profits if a stock runs up too much too soon. Following this strategy since the service's inception in 2014 has beat the benchmark index by a factor of three to one. Become a Microcap Millionaire subscriber today. 

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