The concept of Coffee Can Investing refers to the approach where the terminology of ‘buy and forget’ is used, i.e., investors invest in companies who have been doing well and have performed consistently.
The concept was first started from the states, where it was highly successful. Coffee can is usually referred to as a low-risk trading strategy where stocks are approximately sold and held for nearly 10 years without actively buying or selling them.
How did the concept get its name?
The concept of Coffee Can Investing was first coined by Robert G. Kirby in 1984, it started in Old West America much before the banking system was established and especially when people used to put all their prized possessions in a coffee can and hid it under the mattress.
Ways to build a Coffee Can Portfolio?
- The company the investor wishes to invest must be in the market for at least 10 years with a Return on Capital Employed (ROCE - helps in measuring profitability in terms of its capital) of at least 15% for 10 years.
- The company should have a great goodwill and the market cap should be more than Rs. 100 cr.
- Evaluate your portfolio with coffee can screener in order to build an efficient portfolio.
- The concept helps in lower taxation and transaction fees which helps them to avoid unnecessary expenses which come along with short-term investments.
- They need not rebalance their holdings on a regular basis.
- It helps investors gain high returns as the concept of coffee can make compounding work very well.
- As the concept involves the buying and holding of stocks for a long time, because of which if the investment decision thus taken is wrong then it can also lead to wealth destruction.
- The investment decision requires a lot of in-depth knowledge and analysis
- Sometimes, the investors gain good returns in the short-term as well because of which they ignore the long-term benefits and withdraw after seeing short-term gains.
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 and in-depth knowledge and then can sit back and enjoy the gains received from the investment with help of compounding