In the last ten years ending June 2020, Eicher Motors, Page Industries and Pidilite Industries have generated returns of 30 per cent or more for their shareholders. So, if a person invested Rs 1 lakh in the year 2010, he would now have around Rs 20 lakh, in just a span of ten years. What is common between these companies is that these differentiate from the other companies, which failed to generate such returns. All these companies give a return on equity (ROE) higher than their cost of capital.
Coffee Can Investing Strategy depends upon an individual’s perspective about the market, knowledge about the stock market and foresight used to select the stocks. Some of the few approaches to this style of investing are: Selecting the companies with a market capitalisation of more than Rs 5,000 crore, a constant revenue growth with at least 10 per cent and ROE that is greater than its cost of capital. These criteria will ensure that an investor is investing in a company, which is well established, constantly growing and has good returns. The portfolio can be well-diversified to reduce industry-specific risks like cyclicality of the business.
The benefits of this style of investing are fewer transaction costs, low volatility and lesser need to track the portfolio. When the stocks are bought for a long-term period, the regular expense of trading cost is reduced. The effect of volatility is only when an investor wants to invest for a shorter duration, for example, five years but if the investment is for a period of ten years then, there is a lesser chance of volatility to affect the portfolio.
One of the necessities of Coffee Can Investing is to buy quality stocks and put them aside for at least a decade.