Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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The Coffee Can Portfolio

Posted by Muthu on March 21, 2017

The term ‘Coffee Can Portfolio’ was coined by Robert G Kirby in an article he wrote in 1984.

The concept harkens back to the Old West, where before the advent of the banks, when people put their valuable possessions in a coffee can and kept it under the mattress. They rarely disturbed the coffee can and held it for decades.

The firm in which Kirby worked used to keep buying and selling stocks for their clients. He felt that instead of frequently churning the portfolio, simply buying and holding good companies for long would be more rewarding. It involves less activity and provides better rewards as well.

He says, “The potential impact of this process was brought home to me dramatically as the result of an experience with one woman client. Her husband, a lawyer, handled her financial affairs and was our primary contact.  I had worked with the client for about 10 years, when her husband suddenly died. She inherited his estate and called us to say that she would be adding his securities to the portfolio under our management.

When we received the list of assets, I was amused to find that he had secretly been piggy backing our recommendations for his wife’s portfolio. Then when I looked at the total value of the estate, I was also shocked. The husband had applied a small twist of his own to our advice. He paid no attention whatsoever to sale recommendations. He simply put about $5000 in every purchase recommendation. Then he would toss the certificate in his safe deposit box and forget it.

Needless to say, he had an odd looking portfolio. He owned a number of small holdings with value of less than $2000. He had several large holdings with value 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 zillion shares of Xerox.”

For last few years, I’ve been creating a coffee can portfolio. As of now I own 10 companies. I’m planning to add one or two more in next 2 years. With some future spin offs and demergers, my stock portfolio may end up with around 15 companies. This is a portfolio I’m planning to hold for not less than 10 years.

The same logic holds good for our mutual fund portfolio as well. I make changes only if it is really warrants so. You all invest in mutual fund through us. You are aware that we don’t make frequent changes in your portfolio. We do it only rarely, when it is really required. Though the mutual funds you own may keep changing the underlying portfolio, we ensure minimal tinkering with mutual fund themselves.

We’ve seen that average holding period of stocks is 10 months and that of mutual funds is 18 months. This is only average. 40% of mutual fund investors hold it for less than a year. Whereas you, depending on when you became our client, have been holding on to a portfolio for 5 years, 7 years and even 10 years. This is very rare. Industry data points out that only 2% of investors hold funds for more than 10 years. Already some of you are there in that 2% and rest of you would end up in this elite category in next few years.

You are a living proof that short term investing behaviour can be changed and it is possible to achieve the long term compounding of wealth by staying the course.

Always remember this Buffett quote: The enemy of investment success is activity.

One Response to “The Coffee Can Portfolio”

  1. Ajay said

    What are your criteria in stock selection..

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