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Characteristics Of Coffee Can Portfolio
- A coffee can portfolio, based on data as early from 1991, shows that it beats the benchmark across all time periods. It performs admirably well during stressful periods.
- If invested for over a decade with no churn, this portfolio generates returns that are substantially higher than the benchmark and give a compound annualized outperformance of 11.9% points.
- When we analysed the performance of the 17 historical iterations of the coffee can portfolio with each portfolio lasting for up to 10 years of holding period, there are 125 years of accumulated portfolio investments.
- The median portfolio return (compounded and annualized) has remained robust at around 24 to 25% historically regardless of whether the investor's holding period has been as short as three years or as long as 10 years.
- The coffee can portfolio also delivers an extremely low level of volatility in these annualized returns for all holding periods- a necessary condition for investors to hold large exposure to equities.
- Historical data suggests that the coffee can portfolio offers a probability of more than 95% of generating a positive return, as long as the investors’ holding period is at least 3 years.
If the holding period is for at least 5 years, there is more than a 95% probability of generating a return greater than 9%. A run rate of 26% return per annum results in the portfolio growing in size to 10 times in 10 years, 100 times in 20 years, and 1000 times in 30 years. - When it comes to investing in the stock market, greatness is defined as the 'ability of a company to grow while sustaining its moats over a long period of time'. This enables such great companies to sustain superior financial performance over several decades.
Etee Bajaj
This document is curated by Etee Bajaj. A BBA (HNRS) Graduate from St. Xaviers College, she has also completed her M.Sc.(Finance) and CFA from ICFAI University, Hyderabad. She takes keen interest in stock markets and believes in Value Investing and Fundamental research and considers the storyline of a company a crucial factor in investment. Reading autobiographies of renowned people is her hobby.