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Robust Returns With A Low Degree Of Uncertainty
Robert Kirby first introduced the concept of Coffee Can Portfolio. Kirby, an investment advisor, had an incident involving a client's husband. The gentleman purchased stocks recommended by Kirby in the nomination of $5,000. But unlike Kirby did not sell anything from that portfolio.
This process (of buying when Kirby bought but not selling thereafter), led to enormous wealth creation for the client over a period of about 10 years. The wealth created was mainly on account of one position transforming to a huge portfolio value of over $8 million, which came from holding shares of Xerox over a long time.
Impressed by this approach of 'buy and forget', Kirby coined the term “Coffee Can Portfolio”, a term in which the "coffee can" harks back to the Wild West when Americans before the widespread advent of banks, saved their valuables in a coffee can and kept it under a mattress.
The core takeaway behind this portfolio is that, in order to become rich, one has to let a sensibly constructed portfolio stay untouched for a long period of time.
In addition to this, an intelligent and hardworking investor tries and optimises a portfolio periodically, usually once a year.
“It is very hard for investors to leave a Portfolio untouched for 10 years. A retail investor will be tempted to intervene whenever he sees stocks in the portfolio sag in price.”
“A professional investor will feel that he has a fiduciary responsibility to intervene if parts of his portfolio are underperforming.”. Kirby's counter-intuitive insight is that an investor will make way more money if he leaves a portfolio untouched.
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.