Coffee Can Investing for brewing Portfolio

At some point, we all have dreamt of discovering that stash of cash our ancestors must have hidden somewhere and forgotten about. A wild card entry to a life full of luxury. Something of the sort happened to a guy last year.


You might have heard the story of this MRF shareholder who inherited his grandfather’s shares worth Rs.130 Crore. One fine day, Ravi made a call on a Zee Business show to seek guidance upon learning about his grandfather’s share purchase in 1990. He stated that his grandfather purchased MRF shares for Rs. 20,000 in 1990, and shortly after fell into a coma due to a tragic event. Post his recovery, he presented the share certificate to his grandson Ravi.


The show’s anchor estimated that each of those shares is now worth Rs.64,900, which brings the total value of the shares to more than Rs.130 crore. Talk about finding hidden treasures and secret wealth instruments, huh?!


You might have come across such stories where people bought stocks in certain companies and then forgot about them for decades. Only to realize later that their investments had grown multifold. 


This style of invest and forget approach is often referred to as ‘Coffee Can Investing.’ It is a term coined by an investment manager named Robert Kirby.


“To do nothing at all is the most difficult thing in the world, the most difficult and the most intellectual.”

~ Oscar Wilde


How it all started


Coffee can investment is a strategy that was developed in the United States and is extremely popular there. In 1984, an American investment manager named Robert G. Kirby created the term. People used to store their valuables in coffee cans and then place them under their beds, where they stayed for decades in old West America.


To apply this strategy in trading, investors buy high-performing equities stocks and then forget about them for an extended period. This technique has the potential to generate exponentially large returns, that is if you pick appropriate stocks.



How to create a coffee can portfolio?


It is important to understand that quality and compounding are the cornerstones of coffee can investing. As a result, there are some factors to consider before investing.

  • Choosing which stocks to invest in for healthy returns is a critical component of a Coffee Can Portfolio. One must conduct a background check on the companies.
  • Choose companies that have a great track record of financial performance and market dominance for at least ten years.
  • Rather than concentrating on one stock, it is better to diversify your investments across multiple stocks. Concentrating on a single type of stock raises the risk. 


A stock can be examined on the following characteristics to ensure that these two aspects are in balance.

  • ROCE is the Return on Capital Employed, which should be greater than 15%.
  • The company should be at least 10 years old in the business.
  • Look out for companies with positive cashflows.
  • The company’s sales must increase by more than 10% every year.
  • The company should have a popular brand value and a competitive edge
  • Diversify your portfolio. Never invest more than 25% of your capital in a single section.
  • The companies with a market capitalization of over 3000 crores are ideal for creating a coffee can portfolio.


The upside of having a coffee can portfolio


  • It helps unleash the true power of compounding 
  • The coffee can method is better suited to people who do not have the time to monitor their investments regularly as it does not entail active market participation.
  • This strategy allows you to build long-term wealth despite market volatility. 
  • No transaction costs.
  • Low-risk, high-return probability.


The downside of coffee can portfolio


  • In the long run, not all stocks become multi-baggers.
  • It is vital to select the right stocks, or you may lose all of your money. 
  • Even in extremely bullish markets, you will miss an opportunity to exit your investments.



How to invest in the coffee can portfolio


1) Lump-sum

A lump-sum investment is simply putting a large sum of money into one or a few shots. It is usually the best option for investors who have a large amount of money on hand. This investment strategy entails investing once or twice a year. The Lump Sum investment strategy, on the other hand, is much riskier in terms of short-term market volatility and is better suited to investors with prior experience and knowledge of markets and timing.


2) SIPs:

The systematic investment plan works differently than lump-sum investments. The money is divided into multiple installments and invested in segments here. It is the most secure mode of investment, especially for newcomers. This method can be used by new or inexperienced investors who are still learning about the market. The stocks are purchased throughout the market sessions so it also averages out the market risks. 


3) Buy on Dip: A dip is a drop in the price of a good stock. When the price of a stock falls, investors can buy it. It will benefit investors when the price rises again.



The challenges in Coffee can portfolio


  1. Investors’ bias might make them sell early in bear markets and long periods of stagnancy.
  2. Going by the market capitalization, only 4 out of the Nifty 50 constituents in India are suitable for Coffe can portfolio. ITC, Lupin Pharma, HCL Technologies, and Asian Paints are among them. 
  3. Socio-economic factors and regulatory changes need to be favorable for the technique to work. 
  4. Coffee Can Investing’ focuses only on large well-established companies.  



Interested in how we think about the markets?

Read more: Zen And The Art Of Investing

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