Investing Strategy - Coffee Can Investing
Saurabh Mukherjea, a renowned fund manager as popularized the investing strategy, Coffee Can Investing.
Coffee Can Investing is a simple investing strategy for building enormous wealth with minimal risk by buying the shares of wonderful companies and holding them for a long period of time like 10 years and more.
You buy the shares of a particular company and put it aside for a long period of time without actively buying or selling them in between. Basically, you buy and then forget about the shares for 10 years or more.
This is based on the conviction that good companies will reward you over a long time period, and compounding needs at least a decade to do its magic for the generation of enormous wealth.
Hold is Gold
Coffee Can Investing was termed by the American fund manager, Robert G. Kirby, when he saw one of his client made more wealth than his fund has made, just by not selling the shares when Robert Kirby sold and held it for more than 10 years.
When you buy a spectacular company, you don’t have to actively track it, or buy or sell it when there is big economic news. You just hold it for the time it rewards.
Now, let’s look at how to build a Coffee Can Portfolio.
After you know in which business category, you have your mettle by creating the Circle of Competence, you move on to jotting down the companies which meet our custom filter criteria.
The company should have an ROCE (Return on Capital Employed) of at least 15% for the last 10 years.
Revenue Growth or Sales Growth must be 10% or more for year-on-year.
The company should be an established brand value for credibility.
Usually, companies which are doing business from a long time tend to be trustworthy.
The company should be a large cap which with a minimum of 100 crores market capitalization.
We have extensively discussed on these criterions before. Follow the link below to revisit it.
We already have few people listing down the companies which fit in the Coffee Can investing. Here’s the link for one of the scanner - https://www.screener.in/screens/57601/coffee-can-portfolio/.
As you can see, we have less than 200 companies meeting the coffee can portfolio criteria. This makes our job much easier when we only consider the businesses which we are only familiar with.
So the number would come down to a much lower number, says 50 or so.
Pick only the industry leaders and start buying the shares of it.
Now comes the part where you might want to know when and how to buy the shares for your Coffee Can portfolio.
You have three options, buy every month with the disposable money you have, or buy invest in lump sum, or wait for the stock price to fall and then buy every dip.
These options are subjective and varies from a person to person depending on the financial risk appetite.
But to under these options, If you invest in lump sum amount, you are buying at a single price at that particular time and holding tight. By this, you might be buying at a high price or a lower price. You can’t be sure.
If you are buying monthly, you are buying at whatever price the market offers you. On the plus side, you are averaging out the price as you are buying both at the high price and low price. So no worry about timing the market.
Buying the dip - every time the stock price falls, you buy the stock. By this, you are trying to accumulate more shares of a company at a cheaper rate. This might maximize your profit in the long term.
Anyway, that’s how a typical Coffee Can Investing strategy would work.
Assess, on your own, if this style of investing would work for you. If it does not, we have other investing styles which we would discuss as we move forward.
Until then,
Peace out!