108 - Coffee Can Portfolio Investing

Mental Models discussed in this podcast: Deferred Tax Liability Skin-in-the-game Please review and rate the podcast If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.  Follow me on Twitter and YouTube Twitter Handle: @TreyHenninger YouTube Channel: DIY Investing Support the Podcast on Patreon This is a podcast supported by listeners like you. If you'd like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron. Show Outline The full show notes for this episode are available at https://www.diyinvesting.org/Episode108 Coffee Can Portfolio Seeking "Never Sell" stocks - only certain companies qualify Benefits from a deferred tax liability (Can become quite significant over time) Preferable for individual investors. Hard to implement professionally Characteristics of a Coffee Can Stock An industry that lacks disruption risk Banking (Example) Stable and high returns on capital/equity (15% or higher) Long-term sustainable organic growth of at least 5% but preferably 10-15%. (You don't necessarily want 20%+ growers that will eventually lose all growth) Low competition, could be regulated monopoly or oligopoly Founder led company or a long-term CEO with skin-in-the-game Zero or low debt/leverage policies The ability to be a ten-bagger or a 100-bagger Usually small with the ability to grow large. A small competitor with a competitive advantage (cost perhaps) over larger competitors in a big market. Think early Walmart, Costco, Home Depot, GEICO Intelligent capital allocation strategies that benefit shareholders Lack of dilution Growing dividends or buybacks over time (Dividend Champion type stocks) Unless it is a roll-up strategy, an average to acquisitions can be helpful, because they often destroy shareholder value.  You can't think of your stocks as a "Portfolio" You are a true business owner Judge your success by the performance of individual companies, not the overall portfolio return. Logical point: If every individual company compounds at 10% per year or more, then the portfolio as a whole by definition must also compound by at least 10% per year. Position sizing no longer matters. Your greatest winners may eventually become 50%, 75%, or 90% of your total portfolio. That's okay. That's how the strategy works. This is how the strategy outperforms.  How to implement a Coffee Can Portfolio (The Process) Buy one new stock a year, each year you work. Put all of your savings for the year into that company. Never sell. Ideally register for the shares in direct certificate form. It can be electronically held at a transfer agent, but after the year, don't hold the shares directly with a stockbroker. This limits your ability to sell the shares and is a huge psychological boost in implementing the strategy.  Summary: In this episode, I discuss the coffee can portfolio approach to investing. This investing strategy involves never selling a stock once it is bought. Therefore, you must seek high-quality companies with long runways for growth and high returns on capital.