The Coffee Can Portfolio: A Time-Tested Strategy for Long-Term Investors
Today, let's explore the intriguing concept of the "Coffee Can Portfolio" theory, a timeless investment strategy that emphasizes long-term holding.
One of the first pieces of financial advice I got was from my older cousin, “Store a bit of every pay you get away in a shoebox and only open it to make big purchases.
The Coffee Can Portfolio concept, originated by Robert Kirby of Capital Group in 1984, draws inspiration from the old traditions of storing valuable items in a coffee can under the mattress or any container for that matter.
The idea is straightforward: select a portfolio of stocks wisely and let them sit undisturbed for a long period, typically 10 years.
Why It Works?
This approach minimizes trading costs, eases management efforts, and importantly, prevents your worst instincts from interfering with your investments. It's a method that relies on patience and the wisdom of your initial choices.
Real-World Success Stories
Preston Athey's Experience: Preston Athey, former manager of the T. Rowe Price Small-Cap Value Fund, achieved an impressive 12% annualized return over 20 years with low turnover, implying a holding period of about ten years.
Monster Beverage Example: In the book "100-Baggers," Monster Beverage is highlighted as a stock that turned $1 into $100 in a decade, despite significant drawdowns and periods of stagnation.
Microsoft Example: 10 years from today Microsoft was trading at about $37 now it is at $369 that is a 900% return!!!!
Key Takeaway
The Coffee Can Portfolio teaches us the value of patience and conviction in investing. By choosing stocks judiciously and holding them for the long term, investors can potentially achieve significant returns, outpacing more active trading strategies. The caveat is that you have to pick the winner and I always say pick with companies that are dominating their industries and try to ensure you get in at the right price. If you can do these two things you tilt the odds in your favour. As a side note Warren Buffett does this but at a much larger scale. Right now he has over $150 Billion in cash!!! Just waiting for the next opportunity.
Remember, investing is not just about the constant trading of stocks; it's about holding firm to your convictions and giving your investments time to mature.
I talk about this in detail in my Investing In You course. If you would like to learn more.
Happy Investing,
Kobi