Coffee Can Investing Strategy | Best Long Term Investing Strategy

If you’re a first-time investor or just beginning in stock market and looking for a low-maintenance way to invest, coffee can investing strategy is just right approach to you. The coffee can portfolio was created by Robert Kirby in 1984 ( know the full story here https://cred.club/articles ) and has been successfully used in the US markets. In this article delight, we discuss what coffee can investing is, and how we can get started with this approach!

What is Coffee Can Investing Strategy ?

The coffee can analogy refers to the days of the Old West when people would store their valuables in coffee cans to keep them safe. In those days, they used cans of Coffee to store important things and hide them somewhere safe, usually beneath the mattress. The term came to be is a different story, but you can observe how it resonates with Coffee Can Investing strategy. This strategy is for long-term investors who can hold the stocks for at least 10 years and make a diversified portfolio by matching some conditions of the strategy. After 10 years, you will see some outperformers and some stocks which haven’t moved much while your investment period but the stocks which have outperformed will provide a very high return on investments.

The coffee Can Investing term is nothing but a buy and forget approach for the longer term but systematically rather than going by your instinct. Investing in the right companies and diversifying investments lowers risk for them. By the end of several years, they will have at least a few stocks that have outperformed. These stocks will give a high return on investment. 

Now moving on to top checklist points while triggering a coffee can portfolio.

How To Build A Portfolio Following Coffee Can Investing Strategy? | Coffee Can Portfolio Checklist

The strategy mainly concerns the quality of the stocks, and the basics of the strategy are that you should choose quality stocks with very strong fundamentals over other trendy stocks. Below are the points investors have to keep in mind while making a Coffee Can Portfolio:

• The company should at least have existed for more than 10 years.
• The company’s market capitalization should be more than 100 Crores, which will filter out penny stocks.
• The company must have revenue growth of at least 15% over 10 years. Which is ,Return on Capital Employed (ROCE) >15% for 10 years.
• Every year the company’s revenue growth must be at least 10%.
• The brand value and competitive edge of the company should be good. They must be the market leaders in their sector, irrespective of the sector size.
• If a company has a negative cash flow from operations, investing is not a wise decision.
• The debt to equity of the company should be < 1%.

That’s it. An investor has to keep in mind the things above to build a Coffee Can Portfolio. Once you have zeroed in on a set of 15–20 stocks, you make an equal allocation to each company in your portfolio and forget it. Now you don’t sell stocks or follow the news to take actions on these investments, etc. Choose stocks from multiple sectors. Allocation of more than 25% under a single section is not recommended unless you are very confident.

Why Coffee Can Portfolio outperforms the benchmark? | Best Long Term Investing Strategy

• The volatility is less in the long term.
• In the long term the power of compounding plays its magic!
• The concept helps in lower taxation and transaction fees. That further helps in avoiding unnecessary expenses which come along with short-term investments.
• They need not rebalance their holdings on a regular basis.
• Investing in great quality stocks for long-term gives you awesome returns.

Final Takeaway

There are tons of investing strategies that successful investors have developed over the years. Some are known for their complexity, some for their returns, but the Coffee Can Investing approach is known for its simplicity and returns over the years. Coffee Can Investing has been considered a great style of investing where the investor just needs to take a proper investment decision with a thorough research & then can sit back and enjoy the gains received from the investment with help of compounding.

Read next : Top 5 Factors To Check Before Choosing A Mutual Fund ( https://thebrightdelights.com/top-5-factors-to-check-before-choosing-a-mutual-fund/ )

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