Coffee Can investing is nothing but a very simple investing strategy, using which anyone can become a Millionaire. You want to know how? Let us show you.
Origin of Coffee Can Investing
During the early 50s in America, people used to store their valuable goods and money in Coffee Cans and then hide those cans Because at that time the banks were very few and far between.
Just like that, in coffee can investing what investors do is create a coffee can portfolio. They buy the stocks of current top-performing companies and hold those for a longer period. likewise, American people were doing with the coffee cans to store their money and goods.
Basically, buy some stocks of outstanding performing companies and forget it. In this strategy, investors must hold those stocks for at least 8 to 10 years, Because Coffee Can Strategy is a long-term investment plan.
How To Pick Stocks for Coffee Can Portfolio?
Let’s apply common sense if you want the best returns you must pick the quality stocks for your portfolio, simple as that. It is not about the quantity but the quality of stock. For example, if a Retail company increases the prices of their goods, will people stop Shopping? Obviously, NO. So, you can go for the retail companies like Hindustan Unilever, Tata Consumer Products, ITC for your Coffee can portfolio. In addition to that here are some rules using which investors can pick quality stock for their portfolio.
- The market cap of the company should be more than 100 crores (one billion).
- The Return on capital employed (ROCE) of the last 10 years of the company must be more than 15%.
- The Return on Equity (ROE) of the company should be at least 10% for the last 10 years.
- The company should have been in existence for at least 10 years.
Using these four rules investors can pick some quality stocks for the coffee can portfolio. There is no rule for how many stocks you should pick but, around 10 to 15 stocks of different segments are advisable.
Pros and Cons
If you are wondering that there are so many investment options available in the market, why should I go for Coffee Can Investment? Well in that case here are some really good advantages of this strategy like,
- In coffee can investing Because you are picking your own stocks and not selling them for a long period so there is no short-term capital gain (STCG) or taxes.
- It is a long-term investment strategy so no need to track the market on daily basis.
- It’s a hassle less investment strategy because there is no need for Fundamental analysis or technical analysis. Just check 2 to 3 parameters and go for it.
- There is a negligible chance of negative returns.
It’s not an easy task to do because a person is investing real money here. There are horrifying stories where people have lost all their life savings in the blink of an eye. So just like every coin has two sides Coffee Can Strategy has some limitations as well,
- Here investors are investing in the stock only basis on the past performance of the company.
- The time horizon is a bit longer.
At the end of 10 years, you will see that some of your stocks have not performed well or as you were expecting them to be, some of them have lost their value and even some companies are no longer in existence but out of all, three to five stocks are skyrocketing. Those skyrocketing stocks will provide you with an outstanding return on your investment.