Coffee Can Investing for Big Gains

Why people don’t make money in stocks ?

Generally in my interactions with different investors, I see a lot of common traits. Two such traits are holding on to the losers and selling the winners. People tend to hold on to stocks where they have losses and sell to stocks where they have minor gains say 10-15%. This results in churning out all the good stocks from their portfolio leaving out only the bad stocks. And this is the major reason why people don’t make money in stocks. There are two approaches where people end up making money in the market. The first one is used by all the institutional investors where they buy a stock for long term time frame and evaluate its performance every quarter. They don’t track the stock movement daily and are rather more focused on the company’s business. The second one has an interesting name called coffee can investing. And that’s what we would discuss in detail today.

Coffee Can Investing

This term finds its origins from the US in early 1900s where people used to keep their valuables in a coffee can. In terms of investments, this means buying stocks of few good companies and then don’t track them at all for years (at times decades). This has resulted in huge wealth creation for some investors. For eg: recently a caller called CNBC to ask a question. He discovered that his grandfather bought 20000 shares of MRF in 1990. The present value of those shares was 130 crores (wealth growth of 1000 times). This is a perfect example of coffee can investing.

In this type of investing, people tend to invest in multiple companies. And many stocks in these might fail. But chances are that 1 or 2 stocks can give huge returns and result in big wealth creation.

Is it advisable ?

With the kind of disruption happening in every field, its very difficult to predict which companies will be profitable or even exist for coming decades. For example, Telecom was once a flourishing industry. But with intense competition from Jio, many of the companies are finding it tough to survive. Similarly, stalwarts like Nokia or Kodak went bankrupt. Hence, it makes more sense to buy stocks for long term but keep monitoring the performance of the companies every quarter.

Finding stocks for coffee can investing

To find stocks for long term, one should look at industries which lack penetration in India. India is still on its way to become a developed country and there a lot of room of good businesses to grow. Some of the sectors where investors can find fast growth are: Insurance, Rural based FMCG, Asset Management Firms, Infrastructure stocks, Organized Retail, Healthcare to name a few. One should look at companies with fast EPS growth, high return on equity, low debt, clean track record of management. These are the stocks which would grow with India in coming years. But as an advise, don’t miss to track the performance of the companies every quarter.

Disclaimer: I am not a SEBI registered analyst and not advising anyone to buy. The purpose of this article is to share my viewpoint about fundamentals and the future prospects of the company. So, please do not consider this as an investment tip. Talk to your financial advisor before taking any investing call.

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