The Coffee Can Portfolio: How “Doing Nothing” Beats Wall Street
The Coffee Can Portfolio: How “Doing Nothing” Beats Wall Street
COACHING POINTS
- The Origin: Coined by Robert Kirby in 1984, the “Coffee Can” strategy involves buying high-quality stocks and theoretically putting the certificates in a coffee can under your mattress for 10 years. No selling, no rebalancing, no tinkering.
- The Math: It exploits the concept of Positive Skewness. While most stocks perform averagely, a few “Super Winners” (like Amazon or Nvidia) grow 10,000%. Active traders usually sell these winners too early to “lock in profits,” killing the compounding. The Coffee Can forces you to hold them.
- The Edge: This strategy eliminates the two biggest killers of returns: Transaction Costs and Taxes. By never selling, you pay $0 in capital gains tax for decades, allowing 100% of your capital to compound.
In an age of millisecond algorithmic trading, the ultimate edge is patience. The Coffee Can Portfolio works not because you are smarter than the market, but because you are slower than the market. It protects you from your own worst enemy: the urge to “do something” when the market is volatile. Source: The Journal of Portfolio Management (Robert Kirby)
Scenario: You buy 10 stocks. 9 go nowhere, 1 becomes a Monster.
- Active Trader: Buys 10 stocks. Sells the Monster stock after it doubles (+100%) to “play with house money.”
Result: Mediocre returns. Missed the life-changing rally. - Coffee Can Investor: Buys 10 stocks. Ignores them for 20 years.
Stock 1-9: Flat or Bankrupt (Loss).
Stock 10 (Monster): Grows 100x (10,000%).
Result: The gain from Stock 10 dwarfs all losses from the others. You win by asymmetry.
The Cost of “Tinkering”
| Strategy | Annual Drag (Fees + Tax) Score |
|---|---|
| Coffee Can (0% Turnover) | 0 |
| Index Fund (Low Turnover) | 5 |
| Active Trading (High Turnover) | 35 |
*Every time you trade, you leak money to the IRS and market makers. The Coffee Can seals the capital air-tight.
What-If Scenario: 30 Years of Amazon
Comparison: Capturing the full ride vs. Trading around it.
| Investor Behavior | Total Return Score (0-100) |
|---|---|
| Sold after 50% gain | 2 |
| Sold during Dotcom Crash (-90%) | 0 |
| Held for 30 Years (Coffee Can) | 100 |
Execution Protocol
Do not mix this with your main retirement funds. Open a specific brokerage account titled “Coffee Can.” This mental accounting helps you treat the money as “locked away” for 10+ years.
Since you cannot sell, do not buy cyclical stocks (like Oil or Mining) or deep value traps. Buy companies with high ROIC (Return on Invested Capital), strong moats, and long growth runways (e.g., Big Tech, Consumer Monopolies).
This is literal. Once the portfolio is constructed, remove the brokerage app from your phone. Checking the price daily triggers the urge to sell. Check it once a year just to verify the companies still exist.
COACHING DIRECTIVE
- Do This: Allocate 5-10% of your net worth to a Coffee Can portfolio for your children or grandkids. The time horizon (20+ years) guarantees the “Positive Skewness” will kick in.
- Avoid This: Using this strategy for money you need in 5 years. If the market crashes in Year 9, you cannot sell. This is strictly for multi-decade capital.
Frequently Asked Questions
What if a company goes bankrupt?
It goes to zero. That is part of the plan. In a Coffee Can portfolio of 10 stocks, you expect 1-2 bankruptcies. But the one stock that goes up 50x will more than cover those losses. You must accept the zeros to get the heroes.
Can I add money to it?
Yes, you can add new “cans” (new positions) over time. But the rule is you generally do not sell the existing positions to fund new ones.
Is this better than an Index Fund?
Not necessarily safer, but potentially higher return. An Index Fund (S&P 500) is essentially a “Momentum Coffee Can” that automatically trims losers and adds winners. A true Coffee Can is more concentrated and aggressive.