As a stock market investor, you’ve probably heard stories of how an investor buys a stock at a certain price and then forgets about it for decades, only to find out later that his investment has grown into millions. And you might have considered utilising a similar method to build your fortune.
If you invest in fundamentally sound equities and keep them for several years, you’re likely to get multi-bagger returns—for example, a Rs. 10,000 investment in Wipro’s stock in 1980 would have risen to Rs. 1200 crores today.
Coffee can investing is the practice of purchasing and holding a stock for an extended length of time. Let’s take a closer look at this word.
What is coffee can investing?
Coffee can investment, as shown in the image above, alludes to the “buy and forget” strategy to stock market investing. It’s a low-risk way to build massive wealth by purchasing a set number of stocks at a specific price and holding them for at least ten years to earn significant profits.
Coffee can investing is primarily a long-term investment technique intended for passive investors with a ten-year investment horizon.
From where did this term come from?
Coffee can investing is a notion that started in the United States and has become extremely popular there. In 1984, an American investment manager named Robert G. Kirby created the term. People in old West America used to put their valuables in coffee cans, which they then hid under their beds for decades.
Investors can also choose to buy high-performing equities securities and then forget about them for a long time. This technique has the potential to generate very significant returns, but picking the correct stocks is crucial.
Drawbacks and advantages of coffee can investing
Advantages
-Rather than short-term gambling, this strategy allows you to build long-term wealth through a comprehensive approach.
-You will not be charged any additional fees, such as brokerage fees, taxes, or transaction costs.
-It saves you time and effort because you don’t have to constantly manage your investing portfolio.
-Your investor sentiments are unaffected by short-term volatility and market movements.
-The miracle of compounding allows your investments to grow over time.
Disadvantages
-It’s critical to pick the appropriate stocks, or you risk losing all of your money. In today’s dynamic environment, however, picking companies for decades is difficult.
-In the long run, not all stocks become multi-baggers.
-The success of your portfolio might be influenced by socioeconomic conditions and regulatory changes.
How to create a coffee can portfolio?
- Make a well-diversified portfolio of at least 15 to 20 stocks from companies with excellent fundamentals. Before you choose your stocks, do your homework. Remember that just like coffee has a certain amount of space, your portfolio should have a finite number of stocks.
- Keep your portfolio for a minimum of ten years. Allowing market volatility to affect your emotions is a bad idea.
- Monitor and rebalance your portfolio as needed (not more than once a year)
- While some equities will fade away, others will generate three-digit returns that will surpass the losses.
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