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 Strategy?
Coffee can investment strategy involves buying and holding a portfolio of high-quality shares for long-term, usually five years or more. The strategy is based on the premise that investing in the right companies will result in significant capital appreciation over time. Saurabh Mukherjea popularized the concept in India through his book, “Coffee Can Investing: The Low-Risk Route to Stupendous Wealth.”
The strategy of coffee can investing is straightforward. Investors pick a group 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 stocks 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.
List of Popular Stocks for Coffee Can Investing
Here is a list of popular stocks for coffee can investing in India, based on Saurabh Mukherjee in 2023.
|Company Name||Market Cap (in Cr)||Share Price|
|Page Industries Ltd||₹45,514||₹42,049|
|Indian Railway Catering and Tourism Corporation Ltd||₹56,680||₹709.3|
|Varun Beverages Ltd||₹1,20,235||₹912|
|Hindustan Aeronautics Ltd||₹1,33,402||₹4,090.6|
|SBI Cards and Payment Services Ltd||₹78,861||₹839.8|
|Bharat Electronics Ltd||₹1,01,094||₹143.1|
|Torrent Pharmaceuticals Ltd||₹65,050||₹1,873|
|Berger Paints India Ltd||₹69,529||₹714.1|
Note: The data in the list is from 7th September 2023. Nevertheless, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!
What is a Coffee Can Portfolio?
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. Here are some popular examples of stocks for coffee can investing:
1. Amazon (AMZN)
2. Apple (AAPL)
3. Microsoft (MSFT)
4. Alphabet (GOOGL)
5. Johnson & Johnson (JNJ)
6. Procter & Gamble (PG)
7. Visa (V)
8. Mastercard (MA)
9. Berkshire Hathaway (BRK.A)
10. JPMorgan Chase (JPM)
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.
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.
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:
Page Industries Ltd
Page Industries Limited is engaged in the business of manufacturing and trading of garments. The Company offers knitted garments. The company reports an impressive trailing 12-month operating revenue of Rs. 4,687.41 Cr., showcasing outstanding annual revenue growth of 23%, a remarkable pre-tax margin of 16%, and an exceptional ROE of 41%.
Indian Railway Catering and Tourism Corporation Ltd
Indian Railway Catering and Tourism Corporation is engaged in Catering and Hospitality; Internet Ticketing; Travel and Tourism, and Packaged Drinking Water (Rail Neer). It records an outstanding annual revenue growth of 88%, maintaining a great pre-tax margin of 38%, and achieving an exceptional ROE of 40%, all based on a trailing 12-month operating revenue of Rs. 3,690.67 Cr.
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. It has achieved an outstanding annual revenue growth of 49%, and maintained a great pre-tax margin of 15%, and attained an exceptional ROE of 29%, all based on a trailing 12-month operating revenue of Rs. 14,895.23 Cr.
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 portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered experts
- smallcase.com offers over 200+ stock portfolios, created by 180+ managers
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
How Does Coffee Can Investing Work?
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 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 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:
1. 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%.
2. 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.
3. Invest in the Portfolio: Invest in the portfolio of high-quality stocks, and hold onto them for a long time without actively managing them.
4. Monitor the Portfolio: Monitor the portfolio periodically to ensure the stocks meet your investment criteria.
What are the Cons 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.
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.
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.
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.
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