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. Even I had all the curiosities aroused in me when I heard about it & as an investor, you can hardly ignore such terms that relate to markets & investing. So I did some digging & enlightened myself about what exactly does it mean & I’m here to tell you the same.
The story behind Coffee Can Portfolio
The idea rolls back to the Old West America when people would put all of their valuable possessions in a coffee can under the mattress and not really touch them for a long time before the ubiquitous banking system was established.
What is Coffee Can Portfolio?
The same ideology has to be followed when it comes to buying stocks. Investors keep churning their portfolio i.e buying & selling of stocks frequently. This gives suboptimal returns but what investors miss by selling stocks frequently is optimal returns.
Coffee Can Portfolio in simple terms can be said as buy-and-forget. The ideology is a bolster for “holding on” or “long-term investment” for investors having problems with long-term investments.
In investment, you should always have a long-term approach. Many famous investors always had this one approach in investing which helped them gain superior returns on it.
There were various studies conducted to see short-term investment gains & long-term investment gains & it all came one single conclusion that investors with myopic vision in terms of investing had poor investment gains whereas investors who invested in the long-term, gained superior returns.
The thought process
“I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches - representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
— Warren BuffettIf you were allowed to buy only a limited number of stocks in your lifetime then you would have invested much wisely. You would have studied about the current market trends, the economic growth of your country & how it affects your investment. You also would have studied the company’s profile & which sector they have a major role in & their balance sheet & then you would have invested if the company matches or exceeds your expectations of its performance.
StockBasket is based on this concept . First let me brief you about it as well. StockBasket is a pool of stocks, embedded in a single basket for you to invest in. It is an expert crafted portfolio of stocks with an intent to generate greater risk-adjusted returns.
Obviously, you would also study your objective along with the market. You would play a part of a conservative investor & invest in safer stocks & also as an aggressive investor, you would invest in equity stocks that play along with the market volatility. Here we considered an objective of 10 years. Your objective would be much detail-oriented like saving for your retirement, saving for your children’s education, etc.
Watch the video to know more about Coffee can Investing
How can one create a Coffee Can Portfolio?
You can create your portfolio by keeping following parameters in mind:
- Choose stocks of those companies who dominate the market & have competitive advantage.
- Have a highly concentrated portfolio of 10-15 stocks & intended churn of less than 1 stock per year on average.
- Choose stocks of companies having excellent financial track record of revenue growth & earnings for over 10 years.
- Don’t focus too much on a particular type of stock. Keep it diversified to lower your risk.
It all depends on the market experts of a platform who has studied the future growth of themes in detail.
What are the advantages and disadvantages of a Coffee Can Portfolio in investment?
I know you might be quite intrigued by reading so far & you want to let your hands meddle in investment & have your own exclusive Coffee Can Portfolio stocks but there are always two sides of a coin. There are disadvantages associated with Coffee Can Portfolio along with its advantages. I’m not all praises for Coffee Can Portfolio but rather to present you both the sides of the coin and allow you to make a fully informed decision.
Advantages:
“Compound Interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”
-Albert Einstein- 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.
- Investors can avoid large fees that come along with short-term investment.
- Investing in great quality stocks for long-term can give you good returns.
Disadvantages:
- A large amount of fee needs to be paid for supporting research on organizations that could outperform in 10-years investment along with hours and hours of reading and analysis.
- Many investors withdraw after looking at the short-term benefits & thus ignore the long-term benefits that awaits them.
- You can enter wrong scripts based on market tips & improper research.
- New industries entering the market & replacing the good old-timers can lower the performance of certain stocks.
- Buying and holding a poor quality stock for long-term can lead to wealth destruction.
With StockBasket , you don’t need to put in lots of resources in terms of large fees or endless hours of reading, as the basket which contains the stocks are expert-selected stocks & their research comes with much lower cost.
Also, you don’t have to worry about investing in the poor businesses with StockBasket , because if a great business held in your StockBasket changes dramatically and becomes a poor one, it will be removed.
Does it outperform other investment plans?
Coffee Can Investing method may outperform but that depends upon your Coffee Can Portfolio stocks. Large cap investing in the long-term can definitely yield good results but that requires an extensive research to know which organizations can outperform in the coming years.
Mid cap & small cap are much riskier than large cap investment but on the brighter side, they yield even better results than large cap when markets are in favor. This is due to the fact that mid cap & small cap have a lot of space to grow & thus gives you good returns.
But you should not invest just by looking at its market capitalisation. The primary thing we should look at is the quality of its underlying business. If the quality of the business is great, you should invest and if not ALWAYS avoid such companies. But it can be really daunting to determine whether a business is of great quality.
But StockBasket has got this covered too by investing in ONLY in great quality businesses.
Is there a Coffee Can Portfolio available for Indian equity market?
Portfolio depends upon your risk appetite & your tenure of investment. If you have a good risk appetite & with coffee can investing stocks concept in mind of long-term investment, you certainly can create a portfolio just of Indian equity markets. However, keep in mind to do a thorough research on which stocks to invest or skip this process by investing in StockBasket & hold your portfolio through thick & thin.
