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Coffee Can Investing - The 'Do Nothing' Strategy For Stock Market Fortunes
Coffee Can Investing - The 'Do Nothing' Strategy For Stock Market Fortunes
Coffee Can Investing - The 'Do Nothing' Strategy For Stock Market Fortunes
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Coffee Can Investing - The 'Do Nothing' Strategy for Stock Market Fortunes
That car has been on more family holidays and is featured in more family photographs than I have.
Dad would have loved to pass his beloved car down the generations, but I had little interest in owning it.
Hiding his disappointment, he joked that at least he wasn't bequeathing me shares of the makers of
Ambassador - Hindustan Motors.
As an analyst, I am guilty of reminding you, that instead of buying a Royal Enfield bike, if you had used
that money to buy the stock of its manufacturer, Eicher Motors in 2013, you could have been a multi-
millionaire.
The stock had become a ten bagger by 2017.
Also, I remind people that buying the stock of HDFC in 2007 would have yielded more than buying real
estate in any Indian metro city.
In 1984, a gentleman called Robert Kirby coined a term for such stocks. He gave them a catchy
name: Coffee Can Portfolio:
These are stocks you can buy and seal away in a coffee can for a decade without ever having to take a
second look.
It tells us that even a great product is not good enough to identify stocks for your lifetime.
Instead, you should buy businesses that can keep their products popular, with marginal innovation, all
through your lifetime.
Warren Buffett did exactly that when he bought stocks of Coca Cola twice (in 1989 and 1994) at an
average value of US 1.29 bn.
He did not see the company investing tons to innovate new drinks for decades.
But he did see the product holding its own throughout his lifetime.
Between 1995 and 2019, Warren Buffett fetched unrealised gains of US$ 19.4 bn on the stock of Coca
Cola. In terms of dividends, he earned another US$ 7 bn.
But neither the most popular stocks today, nor the cheapest, may be good candidates for the coffee can.
What makes a stock coffee can worthy, is when the company's products need little change to satisfy
customers for a decade.
And are your kids still using the same brand now?
If some names come to mind, evaluate the quality of the business and its numbers.
If these are sound, then start filling your 'coffee can' with their stocks. If all goes well your kid might
eventually love the product while also growing wealthy with its stock!
The makers of the Ambassador car, Hindustan Motors, unfortunately did not fit the 'coffee can' criteria.
The sturdy car may have served generations. The stock didn't.
The best way to hedge against such risks is to take gradual exposures to the stocks. Doing so, will allow
you to buy more of the stocks as your conviction in the businesses goes up.
As these businesses mature, overcome risks, diversify into high growth areas, or change their capital
plans, you can always stagger your investment depending on your comfort.
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