Coffee Can Investing

Coffee Can Investing

Coffee Can Investing !!!!! is it really something or some kind of joke, no today with this article I want to draw your kind attention towards a new concept of COFFEE CAN INVESTING.  

So before going further lets first discuss about What is coffee can investing?

The strategy gets its name because in the old west people who invest in the stock market would receive physical certificates of proof which they would put away in coffee cans. They would hide these cans in their mattresses later forgetting about them.

These stocks would eventually grow enormously making its holder rich when he found it again. The success of Coffee Can Investing depends entirely on the wisdom and foresight used to select stocks in the portfolio.

" Hence it is a concept based on the research done by Rob Kirby. In simple words, one selects a list of stocks or mutual funds and invests in them, and then literally forgets about it. "

Why coffee can investing is not popular in India? 

Only around 5% of the Indian population indulges in the Indian stock markets. Around 95% prefer to invest their savings in Land and Gold. This could be because we as people tend to put our trust in assets that we can see and touch. Due to this land came to be considered as one of the best investments due to the boom in the period between 2003 to 2013. Due to this India has currently become one of the priciest markets in the world. But the prices are not followed by an apt demand. 

Out of those 5% investing in stock markets, around 95% of them would be day traders only and rest would be medium term traders who watches portfolio daily and exit the stocks if it gives 10-15% returns. Only a handful of people investing in stocks which may be counted in numbers would be in coffee can investing which may be around 0.05% of those people investing in stock markets.

Benefits of Coffee Can Investing

1. Minimum Expenses

Coffee Can Investing can be said to have been built on this factor. Apart from the cost that occurs during the one-time investment, there will be no more transaction cost for the remaining holding period. Tracking an index involves multiple additions and eliminations to a fund portfolio. Due to this, the investments are affected regularly from brokerage and other expenses transaction costs.

A Coffee Can Portfolio created by the individual would not have an Expense Ratio. Also, investors rarely consider how taxes affect their investments. Regular purchases and sales would result in added taxes on any profit earned. 

2. No need for tracking the portfolio.

This is also one of the necessities of Coffee Can Investing. Once we have filtered and achieved a portfolio of quality stock the only thing that is required is for them to be put aside and left alone for a decade.

When we invest we unfortunately always try and keep track of what is going on with the company. CEO changes, political and other economic changes would all stimulate us to act on our holdings. In fact, a Coffee Can Portfolio would even require us to not even look at our stocks during the pandemic.

3. Not Affected by volatility

The filters to create a suitable coffee can portfolio ensures that only the best stocks as per the present scenario make it to your portfolio. However, in the short term, these stocks will face very high volatility in reaction to the market, political, and other changes. In the long term, the stocks will only be judged by their intrinsic quality. In the long term, the portfolio will face reduced impact from market volatility.

4. Out performance by 8-10%

According to ‘Coffee Can Investing’ a portfolio that has followed all the steps will be performing better than the market and beating it by 8-10%

Why don’t funds just follow Coffee Can Investing?

If this investment strategy enables you to outperform the market by such a large margin then the question arises as to why shouldn’t mutual funds just follow this investing strategy.

One of the major reasons is the wait for a very long term it may be more then 10 years. In Coffee Can to judge how you have performed, you will have to wait for over a decade. Very few investors would be willing to commit to such a fund.

Imagine a scenario where a fund does start coffee can investing. It would have to set up a team that would prepare a portfolio for the fund. What next? Coffee can would require you to simply ignore the investment for the next decade. Setting up a fund only as Coffee Can will have a huge setup cost at the beginning with returns only after a decade. In regular investment firms, the employees are rewarded for the right decisions, investments, and performance. These benefits would only be available to the employees of such firms only after a decade. This would be highly unfair to them.

Coffee can investing doesn't suit to all kind of people as it requires not looking at the portfolio. 

Now, question arises, who will apply such kind of concept in real life. And the answer is, we can (retail customers) apply such concept to their portfolio while doing any investment. If one is having a long term horizon, capital and patience then this concept will be wonderful. The stocks should be picked carefully which have good fundamental and strong growth and investment can be done. 

Happy Investing!!!!

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