Coke Versus
Pepsi -- one year returns with daily
observations
Motivation: Two issues motivated this post. First, there is a lot of conventional
wisdom and a lot of smart people saying that market timing is impossible and
that returns to stocks historically dominate returns on assets. Second, I read an article finding that Pepsi
has outperformed Coke and is the better buy.
The numbers I crunched suggest strongly that the return on
both Coke and Pepsi and the relative returns on the two stocks depend highly on
the day you choose to sell or buy. Market timing might be impossible for most
of us but failure to be somewhat discriminate about when you buy or sell will
almost certainly lead to subpar returns.
Data: This post analyzes one-year changes of
daily stock price closes for Coke and Pepsi over the period starting in July
2001 and ending in September 2014.
There are a total of 3331 observations in the sample for the entire
period.
I also look at various subsamples.
Question: What has been the likely one-year return on
holding stock in Coke or Pepsi? How much
does the one-year return for Coke and Pepsi vary over time?
How have returns on Coke and Pepsi varied across years in
this time period?
Analysis: The first chart below has statistics on
one-year returns for the entire sample.
One-year Returns
Statistics Based On Daily Data
|
|||
Coke
|
Pepsi
|
Coke-Pepsi
|
|
Average
|
0.043
|
0.059
|
-0.016
|
Median
|
0.061
|
0.080
|
-0.015
|
STD
|
0.157
|
0.135
|
0.134
|
Min
|
-0.360
|
-0.344
|
-0.442
|
MAX
|
0.440
|
0.419
|
0.361
|
Q1
|
-0.051
|
0.004
|
-0.110
|
Q3
|
0.151
|
0.142
|
0.083
|
The one year return for Pepsi varies from -34.4% to
41.9%
The one year return for Coke varies from -36.0% to 44.0%
Returns near the median are probably most likely in an
approximate sense so I expect 6.1 for Coke and 8.0 for Pepsi. (Interestingly, the average is below the
median. I did not expect this.)
Below is data on median returns Coke Versus Pepsi by year
ending in September
MEDIAN ANNUAL RETURN
End Month
|
Coke
|
Pepsi
|
Diff
|
Sep-14
|
0.027
|
0.104
|
-0.077
|
Sep-13
|
0.094
|
0.158
|
-0.065
|
Sep-12
|
0.097
|
-0.002
|
0.099
|
Sep-11
|
0.196
|
0.046
|
0.150
|
Sep-10
|
0.220
|
0.166
|
0.054
|
Sep-09
|
-0.252
|
-0.257
|
0.005
|
Sep-08
|
0.189
|
0.055
|
0.135
|
Sep-07
|
0.189
|
0.088
|
0.101
|
Sep-06
|
0.046
|
0.151
|
-0.105
|
Sep-05
|
-0.140
|
0.066
|
-0.206
|
Sep-04
|
0.108
|
0.140
|
-0.032
|
Sep-03
|
-0.131
|
-0.121
|
-0.011
|
Sep-02
|
0.085
|
0.063
|
0.022
|
Note: The median annual return presented here is
the middle of annual return on the 255 or so business days in the year.
Things seem pretty even based on the median annual return
for the year. Coke beats Pepsi seven
years. Pepsi wins six years.
It might be useful to look at the worse possible return in
the year for the two soft-drink companies.
Minimum Annual one-year
Return During a Year
|
|||
End Month
|
Coke
|
Pepsi
|
Diff
|
Sep-14
|
-0.086
|
0.012
|
-0.098
|
Sep-13
|
-0.030
|
0.028
|
-0.059
|
Sep-12
|
0.012
|
-0.112
|
0.124
|
Sep-11
|
0.082
|
-0.094
|
0.176
|
Sep-10
|
0.019
|
-0.014
|
0.033
|
Sep-09
|
-0.360
|
-0.344
|
-0.015
|
Sep-08
|
-0.243
|
-0.171
|
-0.072
|
Sep-07
|
0.049
|
0.028
|
0.021
|
Sep-06
|
-0.021
|
0.118
|
-0.139
|
Sep-05
|
-0.227
|
-0.035
|
-0.192
|
Sep-04
|
-0.139
|
-0.009
|
-0.130
|
Sep-03
|
-0.299
|
-0.253
|
-0.046
|
Sep-02
|
-0.263
|
-0.264
|
0.001
|
Based on 255 or so observations on one-year returns.
In most years if one buys/sells on the wrong day the worse
possible one-year return is negative.
Concluding Remarks: Kids often claim that something is
unfair. They are correct. The stock market is not fair. There are some very smart people out there
who have knowledge of specific companies, mutual funds industries and market
conditions. These people know when to
hold and when to play.
One way to deal with
this problem is to invest in lower-cost diversified funds. Vanguard has a good reputation. However, this strategy is only a partial fix
because the overall market goes to extremes – both up and down and it is hard
to figure out when to get out or when to get back in.
The pros say market is timing. But they do reallocate their own portfolios
from time to time. Isn’t reallocation a
form of market timing? The issue of
timing and its impact on retirement savings was considered in one of my
previous posts.
Timing of market slumps and returns on lump sums and
annuities
Critics of this piece will say that the one-year holding
period is too small. I agree that
longer holder periods should be considered.
But let’s point out another factor.
Both Coke and Pepsi are or at least have been great companies. We should also consider GM and Enron.
Readers who found this post interesting may also want to
read a recent “Pound Foolish” on financial advisors
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