Investment lessons galore. Truth be told, investors are spoilt for choice as they have no shortage of lessons to learn. Some lessons—value investing, growth investing, and momentum investing—are time-worn. A relatively newer investment style that has gained prominence in recent years is ‘Coffee Can Investing.’
Coffee Can Investing is a long-term strategy for creating wealth, with minimal to no churn in your investment portfolio. It is an investment style that embodies the buy-and-forget mantra for the investment value to grow over time.
A Coffee Can Portfolio consists of low-risk, industry leader stocks held for 10 years or more. In other words, the Coffee Can Investor differs from a helicopter investor by not tracking investments daily and not obsessing over market volatility in the short run.
The term ‘Coffee Can Investing’ was popularized by Saurabh Mukherjea’s 2018 book by the same title. Let’s understand more about Coffee Can Investing and how you can use the strategy to build a Coffee Can Portfolio to create wealth over time.
What is a “Coffee Can Portfolio”?
A Coffee Can Portfolio is a long-term investment strategy emphasizing simplicity, patience, and minimal intervention.
The coffee can investing concept involves selecting high-quality stocks with a proven track record of consistent performance and holding them for an extended period, typically 10 years or more.
In layman’s terms, the coffee can investment approach is often called the “buy-and-forget” method, requiring investors to resist the urge to make frequent trades or react to short-term market fluctuations.
The coffee can portfolio leverages the power of compounding and reduces transaction costs, seeking to accumulate significant wealth over time.
Where did the term “Coffee Can Portfolio” come from?
“Coffee Can Portfolio” goes back to the old American practice of storing valuables in old coffee cans and hiding them under mattresses for safekeeping. These cans were left untouched for years, symbolizing security and patience.
In 1984, Robert G. Kirby, an investment manager, applied the term to investing through his articles. Back in 1984, equity investments were in physical form and the owner of the shares would receive share certificates mentioning the number of shares held and other details.
Kirby proposed that investors could apply the same principle by selecting high-quality stocks and storing the share certificates of stocks in coffee cans for safe-keeping and holding them for long-term without constant monitoring or trading.
What does ‘Coffee Can Portfolio’ mean in the Indian context?
Coffee Can Investing has gained global traction as a reliable and low-risk method of long-term investing, ideally for 10 years or more for wealth creation. This is true for Indian investors as well.
Saurabh Mukherjea’s book “Coffee Can Investing: The Low-Risk Road to Stupendous Wealth” describes the strategy in detail. It involves identifying companies with strong fundamentals, consistent annual revenue growth of at least 10%, and a Return on Capital Employed (ROCE) of at least 15% over the past decade. Typically, these firms are market leaders with sustainable business models and competitive advantages.
The Indian stock market has depth and offers diverse industrial sectors to select market-leading companies. Investors can focus on industries that provide structural growth over cyclical sectors, avoiding highly leveraged stocks to build a robust Coffee Can Portfolio that will stand the test of time.
Additionally, Indian Coffee Can Investors should avoid monitoring their portfolio’s performance to avoid panic buying or selling during market volatility. Essentially, panic-induced decisions beat the purpose of the buy-and-hold strategy that Coffee Can Investing represents.
How to build a coffee can portfolio?
Stock picking for long-term investment can be tricky. Investors should do extensive research to build a well-rounded equity portfolio. You can follow the five steps outlined below to build a Coffee Can Portfolio in 2025:
- First, the company should have existed for 10 years or more. The firm should also be a market leader in its sector.
- The company should have a market capitalization of Rs. 100 crore or more. Use a portfolio screener to shortlist all listed large-cap and mid-cap companies.
- The return on capital employed or ROCE is the difference between total current liabilities and current assets. Ideally, the ROCE should be 15% or more. A high ROCE indicates that a company is deploying its capital efficiently to generate profits. Add ROCE filter to the screener to identify companies with stable financials.
- The company should have a year-on-year revenue growth of 10% or above in the past 10 years in traditional sectors and the past 5 years in newer sectors. Filter companies based on their year-on-year growth rate on the screener.
- Each added filter will weed out companies with weaker financials and low revenue growth. This step will leave you with a small list of companies that can be added to your portfolio. Select companies from different sectors to diversify your portfolio.
Add the identified stocks to your portfolio and forget about them. Long-term holding without churn is the essence of Coffee Can Investing. The holding period of 10 years or more will give you the benefit of compounding and fetch you regular dividends, helping you create a secondary income stream from your investments.
How to invest in a Coffee Can Portfolio?
Most of us receive income at periodic intervals. For entrepreneurs, income can vary month-on-month, but for salaried individuals, the monthly income is fixed. The regular inflow of money also means we will save money regularly. Here are some ways in which you can invest in a Coffee Can Portfolio:
Invest in Lumpsum
Investing a lump sum amount allows investors to benefit from compounding returns. This approach suits those with substantial savings and those who have the ability to identify high-quality stocks upfront.
Systematic Investment Plan (SIP)
For investors who prefer gradual exposure to equities, SIPs offer a disciplined way to build a Coffee Can Portfolio over time. By investing fixed amounts periodically, investors can benefit from rupee cost averaging.
Buy on Dips
Investors can enhance their returns by buying additional shares during market corrections or dips. This requires patience and an understanding of stock valuations but can significantly boost long-term gains.
As an investor, you can use the above options to meet your investment goals. You can earmark a part of your salary as savings and start an SIP. Alternatively, your year-end bonus can be used to make a lump-sum investment, and extra savings can be utilized to buy the dip to capitalize on the price averaging benefit.
A four-step framework to build a “Coffee Can Portfolio”
Here is an easy four-step framework to help you build a Coffee Can Portfolio:
- Set Clear Investment Goals:
Define your financial objectives and risk tolerance before building your portfolio. - Screen Stocks Using Defined Filters:
Apply filters such as minimum market capitalization (e.g., ₹100 crores), consistent revenue growth (10% annually), and ROCE (15% or more), etc. - Diversify Strategically:
Select stocks from diverse sectors while avoiding cyclical industries prone to economic fluctuations. - Commit to Long-Term Holding:
Resist the temptation to sell during short-term volatility; focus on the fundamentals of your chosen stocks.
These steps will help you devise a solid Coffee Can Investing strategy. Use them as your north star while making investment decisions.
Conclusion
The Coffee Can Portfolio is ideal for patient investors seeking long-term wealth creation with minimal maintenance. By focusing on high-quality stocks, diversifying across sectors, and committing to holding investments for at least a decade, this approach leverages the power of compounding while reducing emotional decision-making and transaction costs. In India’s dynamic market environment, the investment strategy offers a robust framework for achieving financial goals while effectively navigating volatility.
