Coffee Can Strategy | Investing Strategy

How to Filter Stocks for Long-Term Wealth

The equity markets are a great place to generate long-term wealth, albeit a volatile one. However, a stability-focused low-risk strategy exists.

Prevalent in America for years, the ‘Coffee Can Investing Strategy’ gained popularity through Saurabh Mukherjee’s book on the same in 2018. The idea is to invest in high-quality stocks that have a track record of consistent growth and profitability.

This simple strategy requires one to filter (non-banking) stocks based on the following parameters, entailing a ‘buy & forget’ approach ⬇️

1) Market Cap > 100 crores

First, a stock should command a market capitalization of at least ₹100 crores. Companies falling below that threshold are likely to have unreliable data, be operator-driven, and be riskier overall.

2) YoY Revenue Growth of at least 10%

The company’s revenue should be growing at a pace of at least 10% annually. Why 10%? Because the growth rate of every industry moves towards its country’s nominal GDP growth rate in the long term. Since India’s growth rate has averaged between 6-7% in the past 10 years, one would invest in a stock that at least matches, or preferably beats the GDP growth rate of the country.

3) ROCE > 15%

The return on capital employed (ROCE) measures the return on the capital invested by owners and debtors of a company. According to the strategy, a company should have a healthy ROCE of at least 15% to be included in the portfolio.

4) The company should have some Competitive Edge

The stock should have some kind of competitive edge within its industry. It should have some kind of strategic advantage making it capable of maintaining or growing its market share.

Learn to create an investing portfolio that beats the benchmark in our course on Coffee Can Investing Strategy.

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