Coffee Can Shares
I have half way through 100 Baggers, a book which has had lots of discussion on here. I now know where the 'Coffee Can' expression comes from.
It has made me look at my portfolio and I also went back to look at Paul Scott's top 10 holding which he kindly shared. In my own portfolio and in Paul's portfolio I see we have some turnaround/value plays and also some long term holds which I guess would be 'coffee can' shares.
My own personal coffee can shares are Marlowe (LON:MRL) , Sdi (LON:SDI) , Volex (LON:VLX) and possibly Naked Wines (LON:WINE)
I know Paul sometimes mentions certain shares as his 'Coffee Can' shares.
I would like to embrace this approach and would like to find other good shares for a 'Coffee Can' approach as described in 100 Baggers.
I thought a thread where we could share ideas may be useful for a lot of us.
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39 comments
You could actually just invest in a company called the coffee Can.
https://thecoffeecancompany.co...
To me the term 'coffee can share' means a share you own for which you have high expectations. I have high hopes for all the shares I own when I buy them as do most if not all of us. The longer I own shares in a company, the more I understand but obviously you can't know everything. Owning shares in a company is a journey. Sometimes as the journey unfolds, there are surprises, both negative and positive, which can make me reassess.
I am not expecting 100 baggers but I hope my investments do well and ideally would like to hold them forever. It's always nice to find the pot of gold at the end of the rainbow.
To me the term 'coffee can share' means a share you own for which you have high expectation
The standard meaning is "buy and forget" - it derives from the old mid-Western, pre-bank tradition of putting valuables in a coffee can under the mattress and then forgetting about them until times got hard. So, technically, a coffee can share is one you buy and then simply let get on and do its thing without reassessing. I doubt very many people on Stockopedia take that approach to investing.
In my experience genuine coffee can shares usually end up being taken over - Charles Stanley (LON:CAY) today is just the latest in a long line of decent shares I've seen disappear from my portfolio. They tend to have the qualities that acquirers like - reliable cash flow and some business moat that means they can generate good returns on capital. But they're not usually the type of businesss that attract a lot of interest as they don't provide the type of exciting story that drives private investor investment (and disinvestment).
I also hold Sumo (LON:SUMO) and Daily Mail And General Trust P L C (LON:DMGT) which are in takeover situations and I can easily imagine a number of others being acquired. The UK market has seriously underperformed since 2015 and there's a lot of cash floating about looking for a home.
In the end real coffee can shares don't tend to be very exciting, but they just roll on, year after year, doing their thing.
timarr
My lucky dip in the Can 'o' Coffee includes Sosandar (LON:SOS), Boohoo (LON:BOO), React (LON:REAT), Sylvania Platinum (LON:SLP), Cambridge Cognition Holdings (LON:COG), Shield Therapeutics (LON:STX), Somero Enterprises Inc (LON:SOM), Saga (LON:SAGA), Volex (LON:VLX), Intercede (LON:IGP) . If any of the first three make it over the next 10 years, then I'm retiring! If it takes 20 years, well, I would have already retired by then :-)
On the 3rd of April after my read of 100 Baggers I compiled a virtual portfolio of that name. 18 company names from my actual portfolios since I know quite a bit about them, and 1000 pounds virtual cash was lodged in each. To date, the gain is 10.1 percent, I know this doesn't compare with the 20 percent plus made by some stock-pickers in this duration but we are talking Coffee Can. Of my list of 18, three are underwater, no worries, but I have to confess that yesterday I sold the star, Dotdigital (LON:DOTD) which was a 2-Bagger in my actual portfolio. Readers comments / questions are welcome.
On 2nd April I set up a virtual NAPS folio of 20 stocks. It is up 10.8% today, so similar to yours. NAPs is designed to be up to 1 year, the question is will yours keep up the momentum in years to come?
Why sell if it's a Coffee Can stock? I think that is the point, you don't sell winners or even top slice them.
herbie47, ah, there you have me! The truth is that I seek the holy grail and will explore every avenue open to me but time is short, I'm 77 yoa. Dotdigital (LON:DOTD) pays but a small divi and I used the funds to add to 5 stocks that I already hold and pay much higher divis. I couldn't see this on any account back in April. Also I think there is a second route to 100 baggers and that is by ratcheting-up, not top-slicing but by selling high then buying in again on a low but as I say, time isn't on my side. I should imagine that Paul Scott could be a master at this, if he's not already.
If you read “excellent investing”, in there Mark Simpson states that over long periods (a decade iirc) it’s not uncommon for the best performing stocks to experience falls up to 75%.
I can dig the book out and give more accurate statement if people want it, but the point isn’t the exact numbers, the point is even the best stocks don’t constantly beat the market, the old adage ‘time in the market not timing the market’.
Since reading that, I’ve massively reduced my portfolio churn.
Very much agree here. The other thing is not to sell simply because the share has gone "dead", unless you only hold 5 stocks where time is money!
Worth reading "The making of a Multi-bagger", produced as an intern report in the summer 2020 about US and UK shares that had multi-bagged over the previous 5 years.
https://static1.squarespace.com/static/5aaacb57506fbe4636414126/t/5f85c428b4bac16b20450df0/1602602051503/Conclusion+Deck-+Makings+of+a+MultiBagger+-+FINAL-compressed.pdf
I have a dummy portfolio (which I created in Oct 2020) of the 17 listed UK multi-bagger stocks whom as a group have continued to preform well....
Thanks for the link supplied, I found your 17 UK-listed stocks (I only hold UK stocks) and have since constructed 2 pages in a spreadsheet file. One dated 5 years ago (catching Stocko's historical data for the essentials on each stock) and another from the Stocko reports of yesterday/today. I'm trying to make comparisons with these in the stocks that I do hold in order to prevent myself from selling a Coffee Can Multi-Bagger. Wish me luck as it seems to be another of those essential ingredients:)
Yes luck needed too. Out of interest what is the current average 5 year return of the 17 UK multi-bagger stocks from your spreadsheet?
Thanks. That is interesting and useful.
Great report, very interesting, thanks for posting.
David
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I doubt anyone really knows what a coffee can stock is in advance, they just make great ex post narratives and if you happen to own it then you can make like you had the foresight from a hindshite perspective....particularly we add 100 bags to coffee can. [Note to self: Funny how everyone takes bagging in a long term bull market environment, occasionally raging bull]
Most that we ex ante choose as coffee cans will just be those that fit either our analytical prejudice or atavistic needs most comfortably. Having read about and considered coffee can stocks I confess to feeling the vibe but not really getting the actuality.
With the exception of some of the US mega tech I'm sceptical that any other company mentioned here is a real coffee can (some more tenuous than others)....and with the mega cap tech I think your money is quite safe over 10 years (though could plunge inter period obvs) but not necessarily bagging much.
Bagging is risk....risk is seeing differently...and then you bag by having patience on the dissonance/difference you see and holding through the market bs
The ones I bought long ago and have held ever since are: Character (LON:CCT) and Clarkson (LON:CKN) - I've held both of these for circa 20 years and have no intention of selling.
More recent purchases that I intend to hold very long term are James Halstead (LON:JHD), Royal Mail (LON:RMG) and Boohoo (LON:BOO) - I've held JHD for 5 years and RMG since flotation - BooHoo only added at the beginning of this year.
Minty Dick - thanks for sharing. Much appreciated.
Freudian slip?
Hi Dickey Mint, I'm not too sure about your choice in Royal Mail (LON:RMG), I have held it since Privatisation and bought again and again but now I'm seeking a way out. The other couriers are working far more efficiently and cheaply in comparison and now that letter post is much reduced don't you think I may have something there?
Just for some clarity, I wasn't expecting shares to be mentioned that would be 100 baggers. The terms coffee can shares is mentioned in the 100 baggers book.
What I meant are shares that you can put away and forget about for 10 years that will achieve good growth.
The book suggests focussing on growth in revenue and earnings that can be bought at a decent price. The earnings will continue to grow and at the same time the P/E ratio will increase. This is described as the twin engines of growth.
Shares will plenty of room to grow. Naked Wines would perhaps be a good example in some ways. The Direct to Consumer wine market is massive in the US. Naked Wines have just scratched the surface. They believe they can re-invest earnings into attracting new customers with a 4 X return. I don't really want to get into a discussion about Naked Wines. I am just using it in part as an example.
What I meant are shares that you can put away and forget about for 10 years that will achieve good growth.
Well, what would your required CAGR be?
The FTSE 250 has averaged about 9% CAGR over the last 16 years so let's say double that - 18% CAGR over 10 years - that would roughly be five bagging. So you're looking for stocks that can grow around 20% a year for 10 years.
Of course, if you're more ambitious than that then you'll require higher returns. Personally I'd be very happy to multiply my initial wealth by a factor of 5 in a decade but if you want to ten bag over a decade then the stock(s) need to grow at about 25% CAGR.
Of course, companies can only control their earnings, not their share price - and growing earnings at 20% a year doesn't guarantee that the share price will do the same. In fact, for growth companies earning multiples have expanded over the last ten years but that could reverse if interest rates rise.
It's worth noting that higher CAGRs aren't easier to come by in bigger companies. In the decade from 2010 only 10 companies in the FTSE 350 managed CAGRs over 25 - Ashtead (LON:AHT), Melrose Industries (LON:MRO), Rightmove (LON:RMV), London Stock Exchange (LON:LSEG), Howden Joinery (LON:HWDN), Halma (LON:HLMA), Beazley (LON:BEZ), Persimmon (LON:PSN), Computacenter (LON:CCC) and Intermediate Capital (LON:ICP). So probably best to hunt among the minnows.
timarr
There’s more to return than just CAGR, dividends play a huge part of total return. In a hundred bagger, it’s likely that dividends will surpass your initial investment, even a five bagger early dividend reinvestment has a large bearing on overall return.
There’s more to return than just CAGR, dividends play a huge part of total return. In a hundred bagger, it’s likely that dividends will surpass your initial investment, even a five bagger early dividend reinvestment has a large bearing on overall return.
Agreed. Any useful CAGR needs to include dividends. But most fast growing shares won't pay much of a dividend, they'll be ploughing earnings back into growing the business.
As a shareholder, I'd rather a good business reinvests in itself to grow earnings rather than giving me the problem of figuring out how to do it for myself.
timarr
I had someone asking me about shares at a party yesterday. He said "I need to know what the next Amazon is" I said "me too..." . He was asking for tips, asking me about American stocks (I know nothing about that market). I have to be honest it was quite a challenging conversation because I can't and don't feel comfortable making any recommendations or giving financial advice (he's been investing for a couple of months and has already recruited his parents).
I buy companies that I think are good, but I don't know how they are going to perform. I don't know if the next 2 or 3 pieces of newsflow are going to be negative, and I don't know if I'd continue to hold the company were that the case. If I knew anything for sure, I'd have a portfolio comprising of exactly one stock! But the questions he asked me, summed up in a way the inherent optimism of investors, myself included. I managed to at least take something positive from the experience summarising to myself that the potential upside you expose yourself to when investing in the stock market is unmatched. How to achieve that? I don't know. But being in the markets is a start.
I really like this book, and the concepts behind it. I see it as another way to think about investing. It's a worthy pursuit but should not be all consuming. Off the top of my head I'd have to ask questions like, how big could this company get? How big is the market it operates in, how big could it be, will it still exist in 10 years? Are there any examples of companies that have already achieved this size? would that preclude my pick from getting up in that position too? - And the truth is I suspect my imagination be too limited to foresee the true upside.
The points herbie47 made are important as well. When the growth slows - what do you do? Well presumably if its a true coffee can stock you hold. I think the only way I'll end up holding a coffee can stock is if the prospects remain good throughout, and there's nothing that makes me want to sell it. A large reduction in the SP might not make me sell but if I believe the prospects have changed then I would. (Also the point about wether this approach works in the UK markets).
When reading this book I actually started looking back at some of the share purchases made by a highly successful UK stock investor, they're publicly available and go back to 2006. I quickly abandoned the exercise finding so few of the companies still existed! Of the ones that were still kicking about some had gone up 2-3x and some gone down 2-3x. That's Robbie Burns nakedtrader.co.uk by the way, and from his book (which I highly recommend) he's no fan of holding a share all the way down, you can re-enter if things change but advocates cutting losses and preserving capital (opposite of coffee can strategy).
There's an end game with these coffee can stocks too, and by their nature we don't know where it is - we can only look back. At some point, if we are fortunate enough to have picked one we might want to realise our gains, unless stock picking is purely an intellectual exercise.
And there's a difference between hold-forever (coffee can) and 100 baggers and I do think that these concepts are sometimes conflated when discussing this topic. A stock might turn out to be a hundred bagger - but not from its current share price. And you might hold it as a coffee can stock ie not selling (and not expecting it to 100-bag from here).
I wonder if the template for a UK Coffee Can, or 100-bagger stock looks a bit different from the US markets, and if a retrospective investigation to identify those traits could be a useful exercise.
So, zero stock picks from me and a lot of words! I love the idea, and hopefully we find one :)
"I had someone asking me about shares at a party yesterday. He said "I need to know what the next Amazon is" I said "me too..." . He was asking for tips, asking me about American stocks (I know nothing about that market). I have to be honest it was quite a challenging conversation because I can't and don't feel comfortable making any recommendations or giving financial advice (he's been investing for a couple of months and has already recruited his parents)."
The lines in bold are clear signs of a market top. New investors piling in looking to make it big, and share discussion at wider social events. Classic hallmarks.
Yes, good point. I was thinking the same thing, as he's not the first to show me his trading account. Infact I've been thinking about the 3 new market participants I know.
One has a FTSE100 tracker with modest contributions each month. Approx £3k total (property guy - works in finance)
The other has 80% in a tracker or ETF and 20% for discretionary maybe £2.5k?/£400 split (not in investment or finance - excited by markets but not willing to risk all of savings)
The other has some mix of crypto and discretionary stocks. Approx £1.4k (small change to this guy but very excited esp. crypto)
The most important thing is that this is all new money to the markets. In my view, only two of the market participants have been excited by recent market increases and this has been a cause for their entry (could exit the market just as quick?) - their portfolios look very similar - small in size/fun money - free trade accounts, a lot of American stocks, infact I couldn't look up my stocks on their accounts. The distribution of all this new money to the markets varies - UK/US, FTSE100, crypto. I also consider demographic where these people are over 30 - if I was in my 20s would that conversation exist? would the stock/etf/crypto split be different?
In contrast I have other friends who consider the stock market to be pure gambling and only use crypto to buy drugs. I try to pay attention to these things, but not get too bogged down with it, fortunately I haven't received any tips from the shoe-shine boy, but then again I rarely wear shoes..
RE Newbie Investors asking advice for share Tips
Not as bad as them enthusiastically recommending shares (Shoe shine boy urban legend)
https://www.businessinsider.co...
I find this quite difficult. If you had asked me a few years ago I would have picked totally different shares to what I would now, I may have picked Burford Capital (LON:BUR) and Boohoo (LON:BOO) but would not pick them now. Many UK stock grow for a few years and then run into problems or growth slows down, take Fevertree Drinks (LON:FEVR), Card Factory (LON:CARD), Boohoo (LON:BOO) and Burford Capital (LON:BUR) for examples.
I do hold SDI (LON:SDI), Volex (LON:VLX) and Naked Wines (LON:WINE). Begbies Traynor (LON:BEG) would be my top pick at the moment but can't see it 100 bagging.
So is "Coffee Can" the way in the UK or are you better to invest in young growth shares until the growth slows down? I can see "Coffee Can" working better in the US markets where their large companies keep on growing. You can see how the FTSE100 has performed over the last 20 years, UK growth is in the smaller companies.
Also a lot of decent UK stocks get taken over.
Naked Wines (LON:WINE) it all depends how the US expansion goes.
There was a similar post a while ago and I picked MPAC (LON:MPAC) then.
As an alternative to Boohoo (LON:BOO) I would pick Sosandar (LON:SOS) but it's fairly high risk.
Totally agree Herbie. The idea of holding a stock for so long and achieving a "100 bagger" etc. may give a warm fuzzy feeling of achievement inside. But the true measurement in investing is CAGR.
I'd much rather focus on young/smaller companies still in a growth or momentum phase, achieve decent returns on those before growth slows down, then recycle into the same again ad infinitum. I also don't wish to remain significantly invested during severe corrections and bear markets, which no doubt several would need to be stomached with "coffee can" stocks.
Here’s the link to the similar previous post which has a number of coffee can selections:-
https://www.stockopedia.com/co....
As and when shares were suggested I put them (most of, sorry for some reason MPAC didn’t get included) in a notional portfolio - here are the early scores to date. Not intended to be a scientific exercise, just a bit of fun.
Gus.
That list reminds me of the "all-time best songs" competition at the turn of the century that featured the Spice Girls in the top 5 places ...
To 100 bag a company either needs some form of moat that allows it to defend its earnings against the inevitable competition or get lucky with a tail wind that transforms its prospects. Since the latter is unpredictable by definition we're presumably talking about the former.
In fact if you hold a decent company from a small cap into the FTSE 350 the chances are it'll be well on the way to 100 bagging. But to have a realistic chance you'll need to buy the company when its small - probably sub £100 million, certainly no bigger than £250 million.
Given how many good UK companies get taken over it would probably help if it flew under the radar, doing something boring. Something like Belvoir (LON:BLV) or Property Franchise (LON:TPFG) or Ramsdens Holdings (LON:RFX) or Jarvis Securities (LON:JIM) would be my guess.
timarr
OMG Timarr :
I hold all of those "under the radar shares" - in Jarvis' case for over a decade. Hope to converse again when they fly above the radar !
Geoff
I will add Boohoo (LON:BOO) to my list also
Well, to technically qualify as a coffee can stock, youll have to simply buy and forget about the stock for many years. For this to work, the stock would need to have some inherent business characteristic that gives it long lasting advantage in the marketplace in addition to a secure economic moat of some kind. So many variables would need to work perfectly to arrive at the much vaunted 100x status.
With tech evolving so rapidly these days, I doubt one can assume company strategies or business models can continue to remain as long lasting like seen in previous decades. New entrants can easily make an impact in the medium term via tech disruption or via new marketing initiatives that did not exist many years back. Plus availability of ultra cheap money we see now.
I guess our long term holds would need constant medium term review - the plus side being that perhaps stock gains will be faster if a business model is perceived as "working". I personally invest long term but can only reasonably view management strategies to stay relevant for say 4-5yrs. Hence owning a share and completely forgetting about it in the true meaning of a coffee can stock is probably not meant for active investors in tune with the markets and, dare I say, not relevant with the hyper active world we live in. Just my 2c. I loved the book btw
Agree with much of this but the incumbents, if they are smart, buy the new tech early and don't let it dominate them. They also set up rival businesses and often have the financial firepower to just throw cash at them to buy success. The likes of Google, Microsoft, Facebook have been doing this for years.
Yep - but one would need to be super confident that the management of a ‘coffee can’ stock would continue to be super responsive to any hint of disruption. One could have argued that Nokia was a coffee can stock in the early 2000s. Even Windows Mobile (if it were a separate company from Microsoft) had an OS but still failed in spite of having all the financial firepower of Microsoft. All I’m saying is that there’s more to this debate than just choosing the most successful companies in our portfolios and hoping/claiming they’re coffee can stocks. I feel it makes more sense to say they’re more of a solid medium term hold as strategies for high growth companies to succeed are constantly evolving.
Would you really consider Boohoo to be a coffeecan stock? Brands are sensitive to controversies, fashion relevance and other variables - they may look good or recovering now - but how do we know what the landscape is 5 years from now?
Right, but Microsoft didn’t just by the consumer devices part of Nokia, they bought loads of stuff and still are. Some worked, some didn’t. It’s worth remembering Microsoft had about the first mobile OS, way before Android and iOS were a thing but ceded too much ground in that segment. Did it matter in the long term, not really, one investment didn’t really pay off but the bets on Xbox, Azure and O365 did, plus the hundreds of smaller acquisitions that those outside of the IT would never have heard of. Amazon and Google and the rest do similar.
Nokia is still going and still doing well. It’s more than just a phones company. Some investors think that companies are just what they see as consumers, they just don’t understand what those companies do in the background because it’s just so intangible to them.
If those companies stop developing and acquiring the latest tech, be worried, but I think MSFT, Amazon and Google (amongst others) are about as close to hold forever as you’re ever going to get. I don’t think the same about Apple.
And, yeah, Boo is coffee can for me. I expect them to start getting aggressive with acquisitions in markets outside the UK in the next couple of years. We’ve seen them start slowly in the US but I’m confident that their playbook and know how on acquisition and turnaround /expansion is going to be a more dominant feature of the growth story in time.
FWIW I've held GOOGL for a decade at a return of ~26% pa in that time. Probably the very definition of coffee can. I don't plan to sell in the foreseeable future.
I think AMZN has done even better in that time (approaching 20-bags)... gutted to miss that one...