Set It Forget It
In short, this is all about the Coffee Can Portfolio. The reasons behinds why the coffee can portfolio is got faction one of the reason and example of the coffee can portfolio is The Voya Corporate Leaders Trust Fund managed by Voya Financial Inc.
In the year 1935, they have entered 30 stocks in equal quantity and no new additions since then. Absolutely no churning last 80 years and the fund has performed exceptionally well.
The main aspect of the coffee can portfolio is to find out and narrow down on few stocks which have high winning probability in the long run and generate returns at par or above the leading stocks.
The concept of Coffee Can portfolio which was propounded by Robert G Kirby in 1984. One should look out for stocks which can perform in longterm consistently. The selection process of the stock should include sustainability, growth potential, and consistency. Once you have selected the stock portfolio you should set the same and forget it.
You can make more money being passively active than actively passive.
Robert G. Kirby
It all began with Robert Kirby, then a portfolio manager at Capital Group, one of the world’s largest investment-management firms. He first wrote about the coffee-can idea in the fall of 1984 in the Journal of Portfolio Management. “The coffee can portfolio concept harkens back to the Old West, when people put their valuable possessions in a coffee can and kept it under the mattress,” Kirby wrote. “The success of the program depended entirely on the wisdom and foresight used to select the objects to be placed in the coffee can to begin with.”
It all started when a research analyst had been sending research reports to one of its clients. Years later the client’s wife approached the analyst bring back the stock portfolio which was not active over the last decade. The research analyst was surprised to see the portfolio performing so well after such a long period of time. The husband who had collected the portfolio in name of the wife had kept holding the stock recommended without paying any heed to the stock research suggested. More so even the sell recommendations were not given any attention. On every recommendation, some amount was invested and the certificate was stored in a safe deposit.
In this entire process, the portfolio of stocks was a clear winner. It had achieved the baggerdom which most stock market analyst strive to achieve without being active. There could not be a better and easy way to wealth creation process.
With the advent of the technology, it is fanatic how some of the clients check their portfolio of stocks. This is when we understood the real meaning of being passively active than actively passive.
That is an inspiring tale, a triumph of lethargy and sloth. It shows clearly how the coffee-can portfolio is designed to protect you against yourself—the obsession with checking stock prices, the frenetic buying and selling, the hand-wringing over the economy and bad news. It forces you to extend your time horizon. You don’t put anything in your coffee can you don’t think is a good 10-year bet.
This is definitely replicated by some of the major fund houses who have done research and released a report on the coffee can portfolio. Only to realize that the same research is done very years and a set of a stock report containing different stock is realized on year on years basis.
Things to Look Out for Building Coffee Can Portfolio
- Looking out for stocks which have proven track record and consistent dividend paying history.
- Business should be fundamentally strong and professionally managed.
- The portfolio should consist of large caps and quantity of stocks should be very limited.
- Stock Portfolio should consist of diversification as a risk mitigation process.
The even more important aspect of the coffee can portfolio is the stomach to hold the stock over a long period of time. Even at the times of ups and downs.
Coffee Can portfolio is great since it brings in the required discipline in investing and since you are going to hold on to the stocks forever you would be considerable choosy picking up the stocks in the first place. In this style of investing you would be aware of what is going on in the stock market but this should not bother you at all. And the stocks you are holding and their price movement should make the least difference to you.
Is the Coffee Can Portfolio Successful?
The Voya Corporate Leaders Trust Fund managed by Voya Financial Inc is the best example for coffee can portfolio. This fund is successfully running for a period of last 80 years and giving above-market returns.
Sentiment & Bubbles has also carried out a similar coffee can research for the last 10 years. Though not very clear on their selection process the portfolio has given a return of 15.66%.
Over To You
It’s a Personal choice if you want to actively passive or passively active.
The strategy that makes the most money is the best choice. Nevertheless, understanding ones nature accordingly selecting the strategy can give much better returns.
Pro Tip: You would be requiring a very good stock screener to get down to your next stock. A good stock screener is as good as you are.
Come back here and tell us about the before-and-after. I bet you’ll have something to say! If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend or sharing it on Twitter or Facebook. Thank you!