In the realm of investments, where rapid market fluctuations and short-term gains overwhelmingly dominate the narrative, there exists a tranquil oasis known as Coffee Can Investing.
Coined by Robert G. Kirby, a veteran portfolio manager in the US, the term refers to the act of choosing a bunch of carefully curated stocks and letting them grow over the years without ever touching them.
The story
Kirby had been working with a client of his for over a decade and after his passing, all assets passed on to the wife. When he started analysing, he found something interesting.
Every time Kirby made a recommendation to buy, the man would do so for both himself and his wife, essentially duplicating their portfolio.
But with a twist.
Each recommendation to sell was only carried out from the wife’s portfolio while his own remained untouched. The result: his overall returns had far outperformed that of his wife’s portfolio.
“He owned a number of small holdings with values of less than $2,000. He had several large holdings with values in excess of $100,000. There was one jumbo holding worth over $800,000 that exceeded the total value of his wife’s portfolio and came from a small commitment in a company called Haloid; this later turned out to be a zillion shares of Xerox.” — Robert G. Kirby, The Coffee Can Portfolio
As for the term itself, it goes back to the ways of the Old West America where people would put their valuables inside a coffee can and keep it in a safe place for later.
What really is Coffee Can Investing?
To put it in the context of replicable investment strategies, a coffee can investment approach would mean staying invested in 10-15 sound businesses (those that have consistently shown a year-on-year growth over the last decade), over a period of 10 years or more.
Benefits
- Simplicity: For a passive investor who wants exposure to the stock market, this is an approach that simplifies things substantially and lets them stay invested without too much monitoring
- Lesser Risk: By staying invested over a period of time, investors are essentially shielding themselves from short-term market volatility that could happen due to macroeconomic or other factors
- Reduced Costs: Investing also comes with substantial costs, such as brokerage fees, taxes and other associated charges, which are significantly mitigated with this approach
And why it may not be for you
While coffee can investing does sound like a wise approach, it may as well result in you missing out on several short-term market opportunities over the years. In fact, you may even miss the train on emerging sectors that could yield substantial returns.
The right approach
While we can’t decide for you, your approach to investing must depend on where you stand in life, in terms of age and stage of career. Your financial goals have to determine your risk-reward framework.
If you do want to get into Coffee Can investing, the first step would be to go ahead and analyse the market. Identify 10-15 stocks in different sectors that have shown consistent growth and boast of sound financials.
For example, in India, a coffee can portfolio could look something like this: Reliance Industries (diversified conglomerate), Infosys (IT), TCS (IT), HDFC Bank (Banking), ITC (FMCG), Tata Motors (Manufacturing), Titan Industries (Fashion), Asian Paints (Manufacturing), Hindustan Unilever (FMCG) and Sun Pharma (Pharmaceuticals).
Once you have identified and created a portfolio that is diversified enough to mitigate risks, determine how much you can afford to invest in each stock.
The next step? Forget.
Well, not really. While it may be a good idea to not tinker, keeping an eye periodically doesn’t hurt.