Coffee Can Investing | percolate your portfolio performance with coffee can portfolio
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What is Coffee Can Investing? coffee can portfolio low risk road to stupendous wealth.
In recent years, a new type of investing has become popular: coffee can investing. This involves buying a stock and holding it for the long term, regardless of what the market is doing.
There are many benefits to this strategy. For one, it takes the emotion out of decision-making. When you buy a stock and hold it for the long term, you're not worried about day-to-day fluctuations in the market.
The Coffee Can portfolio's origins can be traced back to the American Old West. Back then, people would secure their valuables by putting them in a coffee can and hiding it under their mattresses. The coffee can often stay there for years, or even decades.
An investment manager by the name of Robert Kirby proposed in 1984 that investors could follow the same investing strategy. They would identify a diversified?portfolio?of companies that performed well consistently, invest in their?stocks, and keep invested for at least 10 years.
In India, companies that have generated a return on capital of more than 15% every year with this, and revenue growth of more than 10% every year for the last 10 years have been defined as "unusual billionaires" in the book The Unusual Billionaires.
Saurabh Mukherjea, Rakshit Ranjan, and Pranab Uniyal have also written a well-known book called "Coffee Can Investing: The low-risk road to stupendous wealth." While there are many books on investing, only a few focus on Indian equity markets.
Additionally, a large number of Indian retail investors have been putting a considerable amount of money into gold and real estate. However, over the past few years, these investments have not gained anything from the country's economic growth. Furthermore, investing in coffee can also assist investors in avoiding transaction costs associated with other types of investment.
Ways to build a Coffee Can Portfolio?
The company the investor is interested in must have been in the market for a minimum of 10 years and have a Return on Capital Employed (ROCE) of at least 15% for those 10 years.
The company should have a great reputation and the market capitalization should be more than Rs. 100 cr.
Coffee can screener can help you assess your portfolio and make it more efficient.
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Coffee Can investing better than Mutual Funds?
In India, only a small number of companies fit the criteria for Coffee Can Investing. Out of the 50 top-rated companies, only 10% are suitable for this type of investment. To create a Coffee Can Portfolio (CCP), you must choose a company with a market cap of at least 100 Crore.
It is difficult to find companies in India that have been around for 10 years and have had at least 10% revenue growth and 15% return on capital employed for each past 10 years. However, the fund manager would be able to invest in stocks that are likely to outperform.
If you had invested in companies that fit the criteria of Coffee Can Investing, your portfolio might have outperformed Sensex by 5-10% over the last 15 years. However, during periods when a specific stock is stagnant or there is a bear market, most investors tend to sell the non-performing stocks. This defeats the entire purpose of Coffee Can Investing. On the other hand, most mutual fund managers invest for the medium to long term, which can help you to compound your investment and get higher returns.
Coffee Can Investing is a sound investment strategy, but very few investors succeed in it due to a lack of financial expertise and investor bias. If someone is determined to invest in it, then he should not invest more than 10-15% of his investment corpus in such a concept.
Quantace Strategy offers clients leading professional modern investment products that help them build long-term wealth and offers a way for investors to diversify their stock picking and understand how to better pick stocks. Our baskets are low-cost which is designed to provide the best return at the least risk possible. The baskets can be executed with a single click.
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Disclaimer: This article is for information only and should not be considered as recommendation to buy or sell any stocks.