Understanding Coffee Can Portfolio

2 min read

Coffee Can Portfolio? What does that even mean? How does coffee actually relate to stock markets?

 I’m sure you all must have hopped on to such questions when you heard about it. 

Every beginner investor gets aroused with curiosity, when for the first time they hear about it, and you should not ignore such terms that relate to markets & investing.

What is a “Coffee Can Portfolio”?

Coffee Can Portfolio may be defined as the approach of investing in the company shares that have consistently performed well in the past and keeping it untouched for a while. It may also be defined as the “Buy & Forget” approach. This special portfolio includes companies that aren’t monitored as regularly as others. 

Investors investing in Coffee Can Portfolio build a diverse portfolio of consistently performing companies and make sure that they hold the shares of these performing companies for at least 10 years. 

It may also be termed as a Long-Term investing plan where you hold the stocks for 10 years, at the end of ten years there are chances that you will have few stocks which completely underperformed and few which outperformed making the whole process worth it. At times these outperformers provide you return on the whole investment.

How did the Coffee Can Portfolio come into existence?

Robert G. Kirby coined the term “Coffee Can Investing” in 1984. 

Before the modern banking system found its way in the lives of every common man, people of Old West America would put all of their valuables in a Coffee Can and would hide it under the mattress and would forget about it for a very long time. Similarly, with the Coffee Can Portfolio, investors choose high-performing equities, invest in them, and hold them for a lengthy period. 

How significant is Coffee Can Portfolio in Indian Context?

No one can deny that they have seen this portfolio in their day to day life. Indian mothers do hide money in grocery boxes and under the clothes in the name of “emergency funds’ ‘.

But among the high performing traders and investors, Coffee Can Investment was made popular by industry and literature,popularly by a book by Saurabh Mukherjea, “The Unusual Billionaires,” coauthored with Rakshit Rajan and Pranab Uniyal, introduced the term in the Indian context.

The book defines a Coffee Can Portfolio in the Indian context. It refers to companies that have generated a Return on Capital (ROCE) of over 15% every year with the Coffee Can Investing approach. This makes the approach a low-risk route to making stupendous wealth.

How to Build a Coffee Can Portfolio?

Long term investing has always been an advantage, and is always a recommended  portfolio but on the flip side there are horrifying stories where people have lost all their life savings in the process, let’s face it, it has real money involved.

But with few basics one can enjoy the benefits of being a part of this process. Coffee Can Portfolio is a process of  holding quality stock. As an investor, you must choose a quality stock, which signifies a fundamentally strong company. Here are some points to build a Coffee Can Portfolio:

  • The company should be in existence for at least 10 years
  • Invest in the company with a minimum revenue growth of  10% year on year
  • ROCE of at least 15% for 10 years
  • Market capitalization should be more than 100 crores
  • Always invest in good brand value company
  • The company should have a competitive edge

4-step Framework while building a “Coffee Can Portfolio”

  • Choose companies that are market leaders
  • Build a portfolio of 10–15 companies 
  • Check the growth track record of the company
  • Diversify your portfolio, don’t focus on one type of stock

Advantages of Coffee Can Portfolio

  • Riding the wave of turbulent markets, investors can gain fantastic returns.
  • Over the long-term investment course, the magic of compounding does the trick of multiplying your gains manifold.
  • Investing in great quality stocks for the long-term can give you good returns.

Coffee Can Portfolio is certainly one of the best types of investment provided you invest in the right stocks for long-term & enjoy the benefit of compounding. To make your journey easier to choose the right stocks in your Coffee Can Portfolio stocks, consult your ShareIndia advisor today. Don’t have an account? Click here to get your instant trading and DEMAT account online. 

Disclaimer: Any Advice or information in the post is a general advice for education purpose only and is not responsible for generating any trading strategy for anyone, please do not trade or invest based solely on this information.

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