Coffee Can investing

Coffee Can investing

it’s the mid-1950s. Robert G Kirby, employee of a large investment counsel organization, gets a call from the wife of a lawyer who was the firm’s client.

the lawyer who handled the wife’s finances had passed away, and she had inherited his estate.

Kirby began to analyse the assets and realised something curious. the husband had duplicated the recommendations his company had given for his wife’s portfolio. but there was a small twist. the husband would buy $5,000 worth of stock in both his and his wife’s portfolio and toss aside his own share certificates in a safe. whenever Kirby made a sell recommendation, the lawyer would only sell from his wife’s portfolio.

in the end, returns in the husband’s portfolio far exceeded his wife’s. “he owned several small holdings with values of less than $2,000. he had several large holdings with values in excess of $100,000. there was one jumbo holding worth over $800,000 that exceeded the total value of his wife’s portfolio and came from a small commitment in a company called Haloid; this later turned out to be a million shares of Xerox,” Kirby later wrote.

this incident inspired Kirby to come up with the idea of Coffee Can investing.

Kirby, a veteran investment manager, writes that in Old West America, people would put their valuable possessions in a coffee can and under a mattress. “that coffee can involve no transaction costs, administrative costs, or any other costs. 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.”

“you can make more money being passively active than actively passive,” Kirby said

in India, this methodology was popularized by Saurabh Mukherjee, former CEO of brokerage firm Ambit Capital and currently the founder and CIO of Marcellus Investment Managers.

in plain speak, Coffee Can investing is a high-quality, low-risk, buy and forget strategy. invest for the long run, 10 years or more, in sound businesses which have consistently grown for the last decade, at least 10% year-on-year. and keep the portfolio concentrated to 10-15 stocks.  

the biggest drawback of this strategy is that one can judge its performance only after 10 years. hence, a lot of patience and acumen in stock picking is required for this strategy to work.