Coffee Can Investing is an interesting investment strategy to make successful equity investments.
In general, there are two distinct styles of equity investing strategy. First, ‘Value Investing strategy’ where you buy the stocks of undervalued companies. Second, ‘Growth Investing strategy’ where you buy the stocks of companies in their growth phase. Both these styles focus on buying equity stock and thus are susceptible to the volatility of equity markets and lots of external factors. So both these styles are considered as “high risk” paths to high returns.
Interestingly, there is the third style of investing that is less known, ‘Coffee Can Investing’. It’s a strategy that promises impressive wealth creation with ‘Less risk’.
“Coffee Can Investing Portfolio” is a term coined by Robert G. Kirby who is considered as one of the greatest investment advisors of all times. The concept of “Coffee Can Investing Portfolio” has its roots in Old West America where people used to hide their valuables in the coffee cans and then the cans were put under a mattress to be kept for years or even decades.
Mr. Kirby thereby suggested that investors should follow Coffee Can Investing approach. They should identify such invaluable companies and invest for at least 10 years.
It includes companies which have decades of experience, strong brand value and competitive edge. These companies are least affected by the change in the stock market. During the difficult times, they might have to increase the prices but it won’t affect them. For instance, if ITC increases the prices on cigarettes people won’t stop buying them because of an increase in price.
Coffee Can Investing strategy neither works on value nor growth; it works on quality investing. It selects a company with at least 100 cr. of market cap. The list is further short-listed to companies which have:
– Been around in the market for at least 10 years,
– Delivered revenue growth of 10% and
– Return on capital employed of 15% in each of these 10 years.
The success of Coffee Can Investing strategy depends entirely on the wisdom and foresight to select the objects to be placed in the coffee can, to begin with.
Professional money managers rarely produce a return superior to that of a broad-based, unmanaged portfolio. Hence, the notion that a Coffee Can Investing portfolio can outperform an actively managed portfolio is not without a basic logic.
This philosophy of Coffee Can Investing is build to identify great companies that have the DNA to sustain their competitive advantages over ten, twenty, thirty years ( or longer ). This is because the ‘greatness’, which this the coffee can portfolio seeks, is not temporary, so, is surely not a short term phenomenon. Great companies endure difficult economic conditions and do not get disrupted by evolution in their customers’ preferences or competitors, or operational aspects of the business.
Often such companies appear conservative, however, they do not confuse conservatism with complacency. Their management teams strive and strategize to deliver results better than the competition, year after year. These traits are rarely found outside of great companies. Given the desire for longevity and consistency of performance around ROCE & Revenue growth, Coffee Can Investing is oriented towards B2C over B2B sectors.
Beating the market is not so easy. It requires perspective, patience, and courage. Your most successful investments grow in value, you make partial sales and transfer the capital involved to your less successful investment that has gotten cheaper. The process results in a stream of capital being transferred from the most dynamic companies, which usually appear somewhat overvalued, to the least dynamic companies, which usually appear somewhat undervalued.
The success of Ambit Coffee Can Investing strategy (PMS) is visible as its one of the best performing PMS of 2018, with approx. return of 15%. At PMS AIF WORLD, we focus on unparalleled research, unbiased advice, and suitability analysis, and we give this strategy a Thumbs Up.
PMS-AIF represents a Wealth Management firm pursuing the goal of taking Right investment products to Right investors. Our company’s business mantra is “Simply Ethical”. This is a combination of three-pronged approach Integrity + In-depth Research + Unbiased Advice.
Disclaimer: Investments are subject to market risk. This write up is issued by PMS-AIF and is produced for information purposes only. Information and opinion contained in this document are published only for the assistance of the recipient. It is neither a solicitation to sell nor shall it form the basis. Or be relied upon in connection with any contract or commitment whatsoever or be taken as investment advice.