The Coffee Can Portfolio

by The Compound Investor

You may recall I set up a new portfolio last month based around zero-commission and fractional share investing. Even a spare ten or twenty dollars left over at the end of the month is now enough to swing open the doors to capital ownership. It is a potential game changer for lower-income investors.

You may also recall that I mentioned starting a slightly larger and more traditional portfolio, which is what this piece will introduce. I’m going to call this one the Coffee Can Portfolio. The name itself refers back to the old-time practice of folks keeping their savings – probably physical dollar bills and coins – in old coffee cans. I came across it via Christopher Mayer’s book – 100 Baggers: Stocks That Return 100-To-1 And How To Find Them – which I’m sure I’ve mentioned before on the site.

Near the start of the book, Mayer tells the story of a portfolio manager called Robert Kirby. One of Kirby’s long-term client’s had inherited her husband’s stock portfolio following his sudden death. Upon examining his client’s newly acquired stocks, Kirby noticed that her husband had studiously copied Kirby’s own buy recommendations for his client’s portfolio. At the same time, the husband had steadfastly ignored the sell recommendations. The end result was the kind of extreme buy-and-hold portfolio that I have mentioned a few times on the site. It is the hallmark of most of our “dividend millionaires“. It is also the template of the Voya Corporate Leaders Trust Fund – the ultimate ‘never sell’ portfolio.

Mayer notes that some of the positions turned out to be duds worth a couple of thousand dollars or so. A few others had done quite a bit better, hitting the $100,000 mark by the time his wife inherited them. The big one, though, happened to be an $800,000 position in Xerox stock. This was in the 1950s, so we are talking more like $7,000,000 or so in today’s inflation-adjusted terms. Pretty cool.

The Coffee Can Portfolio

I’m sure you can see where this is all going. The story of Kirby’s client, and indeed the coffee can principle, is a great fit for the site. On that note, I have started with a trio of purchases for my own version. I figure it will eventually grow to maybe a dozen or so names, all of which you can guess from the site’s content (not to mention the constituents of the Micro Portfolio). Folks interested in British and some Eurozone stocks will be able to track something similar here fairly soon.

The three starting names in question are Exxon Mobil, Anheuser-Busch InBev and AT&T. The former two have been hit hard by COVID-19, while AT&T has been a dog for a while because the market thinks that management there is a turkey. All three strike me as quite cheap and unloved, and once the shares have settled I will have them moved across to idle accounts at their transfer agent, Computershare.

Although this just represents the start of this journey, assets under ownership are already pretty diverse. We are talking everything from dozens of oil refineries to the Budweiser beer brand and the Cartoon Network pay-TV channel. A quick look at some profit estimates suggests that the portfolio’s slice of all of those assets will generate around $545 in net profit next year.

Of that figure, a portion will obviously end up directly in the cash account by way of dividends. I hesitate to estimate this figure since Exxon’s dividend has a big question mark hanging over it right now. Any dividend cash will sit tight, ready to go to work to pick up more income producing assets in the future. The rest of the profit will be retained, allowing those firms to grow both earnings and dividends in future years. And so it repeats, with fresh capital speeding up the process. Check back in at the end of each quarter for updates.

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2 comments

Dividend Diplomats August 1, 2020 - 9:11 pm

TCI –

Very cool and love the coffee can reference and idea. I wish this portfolio well/success – AT&T definitely has an unbelievably high yield as a dividend aristocrat.

-Lanny

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The Compound Investor August 7, 2020 - 9:14 pm

Thanks Lanny!

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