Coffee Can Investing was first termed by Robert G. Kirby way back in 1984. The idea traces back to the Old West America before the banking system was established when people put all their valuable possessions in a Coffee Can and hid it under the mattress. As a result, people would not touch them for ages, and sometimes even used to forget about it.
This Coffee Can investing concept involved no transaction cost, administrative cost, or any other miscellaneous costs. The success of this method rests entirely on the foresight and wisdom used to select the objects to be placed in the Coffee Can.
So, How One Can Replicate This Idea While Investing in The Stock Market?
Most of the times, investors have a myopic vision and keep churning their portfolio, i.e. buy and sell stocks frequently. Just because it is easy to buy and sell these days, with no constraint on the maximum number of stocks one can own, this often leads to suboptimal returns due to the additional transaction, brokerage and taxation costs. This amount may not look too significant at first but can often lead to a hefty amount over time.
Coffee Can Portfolio in simple terms is buying and forgetting. The rationale behind this methodology is to invest for a long run in sound businesses. And when I say long run here, I mean a considerable amount of time (for 10 years or more). This means an investor has to forget about the investment and wait for the returns literally.
Robert Kirkyâ€™s Framework to Select Such Stocks â€“ Invest and Forget
â€¢Firstly, select the right investments for your coffee can. Your coffee can has limited space, so be careful of what goes inside it. Think of it like this â€“ what if you were told that you can buy only a limited number of stocks in your lifetime? Obviously, then you would conduct more research on businesses, their financials, market trends, industry to ensure youâ€™re picking the right one.
â€¢Build a concentrated and diversified portfolio of approx. 20 stocks. Conduct rigorous fundamental analysis so you will have to churn less.
â€¢Select the stocks of established companies that enjoy dominance, competitive advantage, excellent track record, consistent top-line and bottom-line growth and run by a competent management.
â€¢Have a long-term view while building a portfolio.
Drawbacks and Advantages of Coffee Can Investing
The strategy states that investors tend to experience higher returns when they tend to set their portfolio aside for the long term. But is it really possible, considering the dynamic world that we live in? Letâ€™s take a quick look at the advantages and disadvantages of Coffee Can Investing.
This strategy allows investors to create more sustainable wealth in a holistic way rather than gambling in the short-term.
â€¢No expenses such as brokerage, short-term taxes or transaction costs.
â€¢No need to track portfolio on a continuous basis, hence saves time and efforts.
â€¢Performance is not affected by short-term volatility, and the magic of power of compounding does the trick of multiplying your wealth manifold.
While investing, you need to monitor your portfolio on a periodic basis, to ensure that your portfolio is well-placed with time. For that, along with the stock, you also need to track political, economic and regulatory changes that can have an impact on the holdings. Considering the ongoing pandemic, as per this strategy, you are not even required to look at stocks during the pandemic.
â€¢The success depends on the stock selection criteria. If the stocks are not researched properly, this strategy can lead to wealth destruction.
â€¢New companies entering the market & replacing the old good companies can affect the performance of the portfolio.
â€¢You will be able to judge the performance only after 10 years.
So, Is There A Middle Way Out?
Research and Ranking, Indiaâ€™s leading equity advisory company, has created a unique solution named the 5 in 5 Wealth Creation Strategy which helps investors to invest in a well-diversified portfolio of 20-25 stocks with the potential to multiply their wealth by 4 to 5 times in 5-6 years.
How can investors benefit from Research And Rankingâ€™s â€˜5 in 5 Wealth Creation Strategyâ€™?
Hereâ€™s what investors will get under the 5 in 5 Wealth Creation Strategy:
â€¢Well-diversified and personalized portfolio of 20-25 multibagger stocks that have the potential to deliver 4-5 times returns in 5-6 years.
â€¢Complete handholding on the recommended portfolio â€“ research report, upside potential, stock allocation, buying range, periodic updates, stock alerts, when to exit and many more.
â€¢Periodic monitoring and rebalancing, as and when required.
â€¢Regular information on investing practices and market developments.
â€¢Smart dashboard and mobile app which allows investors to track their portfolio anytime anywhere.
Research and Ranking is Indiaâ€™s leading technology-enabled equity advisory company. With a team strength of 150+ professionals across 4 locations in India, Research and Ranking is dedicated to making equity investing a hassle-free, rewarding and easy process for the investors of India. Since its inception in 2016, Research and Ranking has helped over 14,000+ investors to achieve their financial goals. For more information, visit https://researchandranking.com/
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