What is the Coffee Can Investing Strategy & How to Build a Coffee Can Portfolio?
Coffee can investing is a term that has gained popularity in recent years, execeptionally in India. It is an investment strategy that involves selecting high-quality stocks and holding them for a long time. The strategy derives its name from the practice of keeping valuables in a coffee can and forgetting about them for a long time.
The idea is that the assets will appreciate. Consequently, becoming worth much more than their initial cost over time. This blog will explore coffee can investing, how it works, and the benefits of using this strategy for your portfolio.
What is Coffee Can Investing Meaning?
A coffee can portfolio typically consists of 10-15 stocks from different sectors and industries. These stocks should be high-quality companies with a track record of consistent growth and profitability. These stocks represent some of the biggest companies in the world, have a competitive edge over the others, and they have all shown consistent growth and profitability over the years, and have a ROCE>15% for 10 years.
With the coffee can investing formula, you can easily build a diversified investment portfolio, aiming for substantial returns to realize your long-term financial objectives.
What is Coffee Can Investing Strategy?
Mr. Sourabh Mukherjee, in collaboration with Ambit Capital, a prominent financial advisory firm in India, introduced the coffee can strategy to the Indian stock markets through his book ‘Coffee Can Investing: The Low-Risk Route to Stupendous Wealth.’ This strategy incorporates defined parameters that enable the creation of a successful coffee can portfolio, surpassing benchmarks and potentially yielding annualized returns that outperform many successful dynamic investment options.
Coffee can investment strategy involves buying and holding a portfolio of high-quality shares for long-term, usually five years or more.
The strategy of coffee can investing stocks is straightforward. Investors pick stock group names of high-quality companies with a proven track record of generating consistent profits and revenue growth. Investors hold the chosen stocks for an extended period, regardless of market conditions or short-term fluctuations. Furthermore, the strategy allows investors to avoid the temptation of selling their holdings during short-term market volatility. Which can lead to missed opportunities for long-term gains.
How Does the Strategy Get its Name?
The name ‘Coffee Can Investing’ has an interesting backstory. Robert Kirby, a portfolio manager at Capital Group, coined the term. Kirby narrates a story where he met a woman who inherited some money and wanted to invest it in the stock market. She had heard Capital Group was a good place to invest and contacted Kirby for advice. Kirby suggested a few high-quality stocks that he believed would do well in the long run, and the woman agreed to invest.
A few years later, Kirby met the woman again and asked her how her investments were doing. The woman replied that she had put the stock certificates in a coffee can and stored them away.
Kirby was surprised and asked why she had not sold any stocks. The woman replied that she didn’t want to interfere with the coffee stocks India and preferred to let them grow over time. Kirby was impressed with her approach and started referring to this investment strategy as coffee can investing.
Top Stocks for Coffee Can Investing
Here is a list of the best stocks for coffe can investing in India, based on Saurabh Mukherjee in 2023..
| Company Name | Sub Sector | Market Cap (in Cr) | Share Price | Close Prie | ROCE | 5Y Historical Growth |
|---|---|---|---|---|---|---|
| Titan Company Ltd | Precious Metals, Jewellery & Watches | ₹3,19,811.65 | ₹3,598.7 | ₹3,602.35 | 34.51 | 20.33 |
| LTIMindtree Ltd | IT Services & Consulting | ₹1,69,481.22 | ₹6,119 | ₹5,944.30 | 33.01 | 34.27 |
| Varun Beverages Ltd | Soft Drinks | ₹ 1,41,971.72 | ₹1,101.4 | ₹1,092.75 | 29.12 | 26.88 |
| Adani Total Gas Ltd | Gas Distribution | ₹1,10,481.42 | ₹1,065 | ₹1,051.55 | 23.49 | 24.98 |
| Tube Investments of India Ltd | Cycles | ₹72,779.59 | ₹3,675 | ₹3,711.55 | 32.63 | 24.82 |
| SRF Ltd | Diversified Chemicals | ₹71,484.33 | ₹2,438.25 | ₹2,421.40 | 21.24 | 21.92 |
| Astral Ltd | Building Products - Pipes | ₹51,603.25 | ₹1,954.7 | ₹1,949.95 | 20.04 | 22.06 |
| Fertilisers And Chemicals Travancore Ltd | Fertilizers & Agro Chemicals | ₹51,316.04 | ₹806.8 | ₹779.10 | 56.96 | 25.49 |
| Persistent Systems Ltd | Software Services | ₹49,178.72 | ₹7,157.5 | ₹6,859.30 | 21.71 | 27.64 |
| Dixon Technologies (India) Ltd | Home Electronics & Appliances | ₹37,626.39 | ₹6,335.1 | ₹6,308.05 | 23.52 | 33.79 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top coffee can portfolio stocks in India in the list is from 15th December 2023. However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
Top Stocks for Coffee Can Investing: An Overview
Here is a brief overview of the best stocks for coffee can investing in India in 2023:
- Titan Company Ltd: Initiated by the Tata Group, the company has a diverse range of products, including watches, jewelry, eyewear, and accessories.
- LTI (Larsen & Toubro Infotech) Mindtree Ltd: Initiated by Larsen & Toubro. Specializes in digital transformation and technology solutions. Provides opportunities for investors seeking exposure to the dynamic IT sector.
- Varun Beverages Ltd: Varun Beverages Ltd is a franchisee bottler of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. The company produces and distributes products, such as Pepsi, Diet Pepsi and Seven-Up.
- Adani Total Gas Ltd: A venture of the Adani Group, is actively involved in the distribution of natural gas. Contributes to the growing demand for cleaner energy solutions.
- Tube Investments of India Ltd: Tube Investments of India, with a diverse product line including bicycles, metal-forming, and infrastructure solutions, can be an intriguing investment.
- SRF Ltd: A diversified manufacturing company offering a range of products, including chemicals, technical textiles, packaging films, and engineering plastics.
- Astral Ltd: Known for its high-quality pipes and fittings, can be a good investment option in the construction and infrastructure sector because of its innovative solutions and product excellence.
- Fertilisers And Chemicals Travancore Ltd (FACT): FACT, a prominent player in the fertilizer and chemical industry, offers investment opportunities for those interested in the agricultural and chemical sectors.
- Persistent Systems Ltd: Persistent Systems, a technology services company, can be an attractive investment for those seeking exposure to the IT sector. Thus, known for its software development and digital transformation solutions.
- Dixon Technologies (India) Ltd: A leading electronic manufacturing services (EMS) provider in India. The company specializes in manufacturing consumer electronics, lighting products, and home appliances.
How Does Coffee Can Investing Work in Indian Markets?
The idea behind coffee can investing is to invest in high-quality stocks and hold them for an extended period. When selecting stocks for your coffee can portfolio, look for companies with a solid competitive advantage, and a sustainable business model. Along with this, look for a proven track record of generating consistent profits and revenue growth.
It is also crucial to diversify your portfolio across multiple sectors and industries. This approach helps to minimize risk by spreading your investment across different sectors and reducing the impact of sector-specific risks. Diversification also helps to capture and investing coffee market opportunities across various industries and sectors
Once you have selected your stocks, the next step is to hold them for an extended period. This is a crucial aspect of the coffee can investing strategy. By holding your stocks for an extended period, you can avoid the temptation to sell during short-term market volatility. Which will lead to missed opportunities for long-term gains.
How smallcases are Designed Keeping Coffee Can Investing in Mind?
smallcases are designed to align with the coffee can investing strategy in several ways:
- Long-term orientation: smallcase portfolios are designed with a long-term orientation in mind. The platform’s algorithm selects stocks and ETFs based on their long-term growth potential, rather than their short-term performance. The goal is to provide stable returns over the long term by investing in companies with strong fundamentals and competitive advantages.
- Diversification: smallcase portfolios are diversified across sectors, industries, and asset classes. This helps to spread the risk and reduce the impact of any individual stock’s performance on the overall portfolio.
- Quality-based selection: smallcases lets you invest in high-quality companies with a competitive advantage, strong financials, and long-term growth potential. The platform’s algorithm uses a quality-based selection process to identify such companies. This helps ensure that the portfolio comprises companies likely to perform well over the long term.
- Low turnover: smallcases are designed to have a low turnover rate. This means that the platform’s algorithm does not make frequent changes to the portfolio, which can lead to higher transaction costs and tax implications. Alternatively, the platform aims to hold the stocks and ETFs for an extended period. Ideally forever, in line with the coffee can investing strategy.
- Regular rebalancing: smallcase portfolios are rebalanced periodically to ensure they remain aligned with the coffee can investing strategy. The platform’s algorithm uses a disciplined rebalancing approach to adjust the portfolio’s weightings based on the changing market conditions.
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade model portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered investment experts (also known as smallcase managers)
- smallcase offers over 500+ stock portfolios, created by 200+ managers
Here are a few popular smallcases among new investors:
Disclosures for aforementioned smallcases
What Are the Factors to Look Out for In the Coffee Can Strategy?
The coffee can investing approach has gained recognition in coffee share bazar. To achieve positive outcomes, investors need a thorough understanding of the essential parameters relevant to an Indian portfolio. Careful and diversified stock selection is paramount to navigate potential volatility within specific sectors.
Despite its foundation in the “buy and forget” concept, practical considerations arise in today’s dynamic environment. Given the continual evolution of industries and technologies, periodic portfolio reviews and rebalancing become imperative. Additionally, chosen stocks should ideally hold a prominent position within their industries, offering products with either assured demand or adaptability to meet evolving demands in the future.
How to Build a Coffee Can Portfolio?
Building a coffee can portfolio involves selecting a set of high-quality stocks and holding onto them for a long time. Here are the steps to build a coffee can portfolio:
- Identify High-Quality Stocks: Start by identifying high-quality stocks with a history of generating strong returns. And a sustainable competitive advantage with a market capitalisation of at least 100 crores. The Return On Capital Employed (ROCE) for 10 years should be more than 15%.
- Determine the Investment Amount: Determine the amount of money you want to invest in your coffee can portfolio. Investing any amount is possible. However, experts recommend investing in small increments over time to benefit from dollar-cost averaging.
- Invest in the Portfolio: Invest in the portfolio of high-quality coffee in can stocks, and hold onto them for a long time without actively managing them.
- Monitor the Portfolio: Monitor the portfolio periodically to ensure the stocks meet your investment criteria.
Should I Invest in a Coffee Can Portfolio?
Coffee can investing represents an excellent strategy for investors seeking long-term wealth accumulation without being bothered by short-term market fluctuations. This strategy suits investors with a long-term horizon of 10-15 years or more, who are willing to hold their investments for that period. Additionally, the strategy is ideal for investors who do not have the time or expertise to actively manage their investments.
Coffee can investing is unsuitable for investors looking for quick returns or unwilling to hold on to their investments for an extended period. Albeit not suitable for investors who are risk-averse, as investing in stocks always carries a certain level of risk.
What are the Benefits of Coffee Can Investing?
There are several benefits to using a coffee can investing strategy for your portfolio:
- Long-Term Gains: The primary advantage of coffee can investing is the potential for significant long-term gains. By holding high-quality stocks for an extended period, investors can capture the full potential of their investments and benefit from the compounding effect of reinvested dividends.
- Reduced Risk: Reduced risk of short-term market volatility is another advantages of coffee can investing. Owing to the fact that, by holding stocks for an extended period, investors can avoid the temptation to sell during short-term market fluctuations. Which can lead to missed opportunities for long-term gains.
- Simple Strategy: The coffee can investing strategy is simple and easy to understand. Investors can pick a group of high-quality stocks, hold them for an extended period, and benefit from long-term gains without the need for constant monitoring or adjustments
- Diversification: Diversification is crucial, by investing across different sectors and industries, investors can spread their risk and minimise the impact of sector-specific risks.
- Low Cost: Coffee can investing is a low-cost strategy that requires minimal trading and management fees. This approach helps to maximise returns by reducing investment costs and expenses.
What are the Risks of Coffee Can Investing?
Here are are a few challenges to coffee can investing:
- Lack of Flexibility: Coffee can investing is a passive investment strategy that does not allow for much flexibility. Once you have selected your portfolio of high-quality stocks, you can’t make changes.
- Identifying New Stocks: It is difficult to identify the right stocks to include in one’s portfolio and requires detailed analysis and expertise which is hard to find.
- Timing Risk: Investors may miss out on short-term gains by holding stocks for years without selling them.
To Wrap It Up…
Coffee Can Investment is regarded as a great style of investing. Where the investor just needs to make an appropriate investment selection based on extensive study and in-depth knowledge. They can then relax and take advantage of compounding to enjoy the benefits made from the investment.
FAQs
The primary advantage of coffee can investing is the potential for significant long-term gains. By holding high-quality stocks for an extended period, investors can capture the full potential of their investments and benefit from the compounding effect of reinvested dividends.
In 1984, Kirby coined the term “Coffee Can Investing.” In Old West America, people stored their valuables in coffee cans, which were often hidden under mattresses. This practice predates the establishment of the banking system.
Coffee Can Investing presents a straightforward and effective method for long-term wealth generation. Additionally, it involves choosing top-notch stocks, following strict criteria, and retaining them for an extended duration. This strategy may lead to outperforming the market and capitalizing on the power of compounding.
The core idea of coffee can investing is to “buy and hold.” However, while this approach is geared toward the long-term, short-term returns may be relatively lower.
Purchase shares from at least five leading companies in various industries. Additionally, consider exploring alternative options like indices, mutual funds, SIPs, etc.
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