What Is Coffee Can Investing

Coffee Can Investment is just another way of saying "buy and forget." The stock market is uncertain and turbulent in the short term, but as the time horizon gets longer, it stabilizes and becomes more predictable. This is a characteristic of the stock market that the Coffee Can Investing approach leverages and makes long-term investments in.

How Coffee can Investing Strategy Emerged?

The majority of consumers purchase shares without doing any research first, and they monitor their performance every day, which is not recommended for long-term investors. Robert Kirby, a fund manager, came up with the phrase "coffee can investing" in 1984 when one of his clients' husbands bought shares worth $5,000 on his advice but failed to sell them.

Robert only came to the realization that the $5,000 investment had grown to more than $8,000,000 when his client's husband passed away, primarily as a result of the investment in the company XEROX. This method was given the nickname "Coffee Can Investing" by Robert Kirby after he was impressed with it. In Old West America, before the ubiquitous banking system was developed, individuals would store all of their valuable goods in coffee cans and not really touch them for a long time. This is where Robert Kirby got the idea for the name Coffee Can.

The most notable success story of a coffee can investing approach was that of Rakesh Jhunjhunwala. In 1993, he purchased 4.4 crores of Titan shares for Rs. 3. and still possesses those shares, with Titan's share price currently standing at $2500 per share.

How Coffee Can Investing Became Famous in India?

Saurabh Mukherjee made the phrase "coffee can investing" popular in India. While Saurabh Mukherjee was the CEO of Ambit Capital in 2018, his team started an investigation to see how the Coffee Can method affected Indian investors.

His team discovered that this approach produced extraordinary outcomes and that the Coffee Can portfolio not only outperforms the Sensex over time but also does well when the market declines.

Saurabh's team applied some very basic criteria to identify a small number of companies that made up the Coffee Can portfolio in order to investigate it. Because the average Coffee Can portfolio has only 12 companies, compared to the close to 7,000 companies that make up the stock market, these filters set a high standard for businesses to meet.

As government workers can invest in the stock market, the coffee can investing technique is most suited for them.

What makes the Coffee Can Portfolio Effective

1). Less Volatility

Market volatility is one of the main causes of share market losses, but with the Coffee Can Investing method, you stay invested for longer periods of time, which lessens the influence of market volatility and allows compounding to work its magic.

Consistency: During the past ten years, companies in the CCE portfolio have consistently produced 10% growth and 15% ROCE. Long-term upkeep of these growth rates becomes extremely difficult.

Here, management is crucial since attaining these goals shows that a company's management is adept at allocating funds for projects and making decisions that ensure value is made for shareholders, which makes Coffee Can companies boringly consistent.

2). Domination

A company has something truly special if it can increase its sales year after year for ten years. Companies in the Coffee Can portfolio have a substantial market share because they are leaders in their respective industries.

3). Winner Companies

Winners always balance out losers in a Coffee Can portfolio. Even if some of the companies in your portfolio may eventually experience losses or barely provide market returns, the lucrative ones will more than make up for any shortfalls and even surpass them significantly.