Understanding what is Coffee Can investing: Investing is the art of creating wealth. In today’s world, wealth creation should not be considered as an option, but a priority. With inflation soaring to record levels, do you still think that investing money in FDs or keeping your savings in the bank account can help you fetch inflation-proof returns? Well, think again!
Equity is regarded as an asset class that can help you achieve your goal of wealth creation and can help beat inflation over the long term. True, people say that equities are risky, but investing for the long-term can make you confident about your investments.
In the stock market, there are investors purchasing stocks at specific prices with the ultimate goal of wealth creation. These investors intentionally forget about these stocks for decades only to discover that their investments are worth millions.
Investing money in financially strong companies and holding onto them for several years can help in achieving multi-bagger returns. This strategy of buying and holding a share for a significant amount of time is commonly referred to as Coffee Can Investing.
Simply put, this strategy is a low-risk way to build enormous wealth by buying shares of strong companies and keeping them for a minimum of 10 years.
This strategy has to be followed with full dedication, and there should not be any active buying or selling. It focuses on the “buy and forget” approach to investing. Investors can go long on shares of the companies that have performed consistently well.
Investment in such shares can help you create a “Coffee Can Portfolio.” This strategy is suitable for passive investors having an investment horizon of over a decade. Let’s explore more about what is coffee can investing. Keep Reading!
What is Coffee Can Investing – Who coined this term?
Coffee Can investing was a concept that originated in the US. The term was developed by an American investment manager – Robert G. Kirby. In old West America, individuals used to hide their prized possessions in coffee cans, and then they used to place them under their mattresses, where these possessions stayed for decades.
In a similar fashion, investors can decide to buy high-performing stocks and forget them for a lengthy period.
While people in India have now started following this concept in stocks, earlier, investors used to apply this concept only in commodities like gold, real estate, etc.
How can you create a Coffee Can portfolio?
Investors had an opportunity to learn several new things during the pandemic. And stock market investing tops the list. Several first-time investors tried their hands by making investments in the financially strong companies as these were available at a bargain.
There are several advantages to long-term investing. First, it helps you achieve the benefit of compounding. Second, investors can earn regular income in the form of dividends.
The following steps are required to be followed for building the Coffee Can portfolio:
- Investors should create a well-diversified portfolio having at least 15-20 stocks of strong companies. Make sure to research well before selecting and buying your stocks for the portfolio. This is because the portfolio needs to have a limited number of stocks. It is based on the concept that coffee can have limited space, so your portfolio should follow this.
- This strategy actually tests your patience. After selecting and buying stocks, make sure to hold them for a minimum of 10 years. Even if the market fluctuates and becomes volatile, your sentiments should not get impacted.
- Monitoring and rebalancing of the portfolio are allowed, but not more than once in a year.
- There can be some stocks that can end up in losses, but some stocks can provide three-digit returns. Therefore, returns can easily outweigh losses.
- The ROCE of the company should be above its cost of capital. Investors can look for companies having a ROCE of >15% for the past 10 years.
- The company needs to have a popular brand value and should have a competitive edge.
- Investors must look for companies having strong sales growth. The company must have sales growth of >10% every year throughout the last decade to become a good choice.
Coffee Can investing is better suited to people having time constraints i.e., not having enough time to monitor investments regularly. This investing style doesn’t need active participation in stock markets.
Is Coffee can investing for beginners?
Yes, Coffee can investing can be used by beginners as it comprises of buying stocks in companies that have a consistent track record of success and it does not require constant monitoring of the portfolio.
The above points explain the basic parameters that investors can look into for their Coffee Can portfolio. The company’s presence for over 10 years, positive cash flow from operations, dividend yield of more than 1%, etc.
These are some other steps that are being followed by the investors for creating the Coffee Can portfolio. This investing style helps investors to create sustainable wealth, and they tend to get the benefit of compounding. However, investors need to remember that short-term volatility and market fluctuations should be ignored.
That is all for the article on what is coffee can investing, hope you enjoyed reading the article. Check out portal.tradebrains.in/superstars/ for more SuperStar portfolios. Happy Investing!
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