The Myth of “Coffee Can” Investing
I recently listened to a podcast discussing an approach often referred to as “Coffee Can Investing.” The idea is simple and appealing: an investor conducts extensive research, identifies a handful of exceptional companies capable of compounding revenues and earnings at above-average rates for decades, purchases the stocks, and then effectively forgets about them—figuratively burying them in a coffee can in the backyard. Proponents argue that buying and holding forever is the surest path to superior investment results. Warren Buffett himself has famously said that his preferred holding period is forever.
It sounds compelling—until we examine the practical challenges that accompany this strategy.
First, how can one be certain that a company will continue compounding returns for decades? Countless investors armed with elite educations, deep experience, and access to high-quality information have tried to answer this question. While a small number have succeeded, the vast majority have produced results that closely track the broader market, at best.
This reality was highlighted by research from Hendrik Bessembinder, a professor at Arizona State University. In a widely cited study, he found that just 2.4% of stocks were responsible for all net global stock market wealth creation—approximately $76 trillion—from 1990 through 2020. In other words, the overwhelming majority of stocks do little more than keep pace, and many fail to do even that.1
Suppose, however, that you manage to identify one of these rare “golden geese.” The challenges do not end there. Most investors will not—and should not—ignore their portfolios for years on end. We advise against such benign neglect.
Even if that discipline holds, success introduces a new problem: concentration risk. A portfolio built around a handful of extraordinary winners will, by definition, become highly concentrated. Given that only a tiny fraction of stocks account for most long-term returns, the end result is a portfolio dominated by very few holdings. From both a risk-management and fiduciary perspective, this is difficult to justify. It is also unlikely to satisfy a compliance department.
Finally, consider the tax consequences. By holding positions indefinitely, the portfolio forfeits opportunities to improve tax efficiency. When gains are eventually realized, the tax bill can be substantial. Uncle Sam will want his 15%, and depending on your state of residence, local taxes may take an additional bite—unless the assets are held in a tax-advantaged account such as a Roth IRA.
In the end, “Coffee Can Investing” is a seductive myth—one that sells books and generates catchy headlines. In practice, it rarely unfolds as advertised. The obstacles are real, the risks are significant, and there are compelling reasons why this approach is far more appealing in theory than in real-world investing.
1 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
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