Coffee can portfolio is a buy-and-forget investing approach in the company shares or stocks that have performed significantly well in the past.
Also termed as a long-term investing plan, an investor may hold the stocks for at least 10 years and not engage in actively buying or selling them. After this period, chances are that a few stocks would’ve completely underperformed and others may have outperformed. At times, these outperformers provide an investor with returns on the overall investment.
Here’s the lowdown on a few points to build a coffee can portfolio:
- Ensure that the company has been in existence for more than 10 years. Ideally, choose companies that are market leaders for a long time in the industry
- Invest in the company with minimum revenue growth of at least 10% on a year-on-year basis (Y-o-Y)
- The return on capital employed (ROCE) should be at least 15% or more
- Build a portfolio of at least 10-15 companies that have a market capitalisation of more than Rs 100 crore
- Focus on companies from different sectors to diversify your portfolio
Considering that there is no need for frequent trading and churning of the portfolio, this results in reduced trading costs in terms of brokerage fees, commissions, etc.
It involves lower tax liabilities, as the coffee can approach involves long-term investments. Besides, the approach also acts as a hedge against market volatility and short-term fluctuations.
Overall, the coffee can approach is a low-risk investment strategy that ensures significant returns in the long run.
This investment strategy may sound simple, but it may prove to be really difficult to follow because many a time it is hard to not get affected by the market volatility and hold stocks for more than 10 years. However, the keyword is patience while adopting a coffee table investing strategy.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.