What Is Coffee Can Investing Strategy

A "buy and forget" method is what is meant by "coffee can investing." The stock market is uncertain and volatile in the short term, but as the time horizon lengthens, it gets less volatile and simpler to anticipate. The Coffee Can Investing approach leverages this aspect of the stock market and makes long-term investments in the market.

Investors should only put money into companies with solid fundamentals, keeping in mind the following considerations:

1.. Select companies whose market cap is greater than 100 crores

You only choose firms for your Coffee Can portfolio that have a market capitalization of more than 100 crores. Learn about the top 10 Indian firms by market capitalization. Companies with a market valuation of less than 100 crores do not have access to a lot of reliable information, and there is a good probability that these businesses will misrepresent their financial data.

2.. Check whether a company has generated a ROCE of 15% or more in the last 10 years

A financial measure called return on capital employed (ROCE) can be used to evaluate the capital efficiency and profitability of an organisation. It assists us in determining how well a company is turning a profit on the money it invests in the business. The better the corporation is at allocating its capital, the greater the ROCE.

Because a corporation must make a minimum profit to cover its cost of capital, a minimum ROCE of 15% is chosen. The golden rule is that a business should only fund endeavours that offer returns greater than its cost of capital.

3.. Revenue of the company should be at least 10% on a year-to-year basis

India's nominal GDP growth averaged 13.8% between 2007 and 2017. The nominal GDP is the rate of growth of a nation's GDP excluding the effects of inflation. A good business that has public appeal and a strong brand value must be able to grow by at least 10% over a ten-year period.

The team created portfolios starting in 1991 with these numbers in mind, and the results amply demonstrated that such a group of companies consistently outperformed the Sensex. The Coffee Can Portfolio's ability to outperform the market was unaffected even by the 2008 financial crisis.

To Sum Up

The Coffee Can Investing plan is straightforward on paper, but in practise it is challenging to implement because short-term volatility tests our perseverance and character. Given that the human mind is prone to a number of delusions and biases that cause us to sabotage our own financial independence, it takes a great deal of patience and resolve to resist being swept up by market conditions.

So, using the Coffee Can technique, those who have faith in their procedures and don't let short-term gains and losses influence them can make good profits over the long haul.

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