What do you think about the coffee can portfolio? Do you think it would work? Why or why not? Thanks for watching! If you're interested in more content, you can join me on Patreon! www.patreon.com/nathanwinklepleck
arxiv.org/pdf/2201.00223.pdf another way to make my while sleeping - buy the stock index at close and sell at open = make 100% of total returns / Buy at open, Sell at close = make negative returns
As a thought experiment, I took the 1995 Dogs of the Dow (the earliest year I could find) and tried to track the results if you had bought an equal dollar amount of the ten stocks and held them to the present. It wasn't as easy as I had hoped because of splits and acquisitions, but it looks like the coffee can approach would have beaten the DJIA handily. The Dow is up about 300% but the '95 Dogs look like they're up about 450%. Didn't track dividends, but since they had highest dividends in 1995, it's probably a reasonable bet that their dividend stream would have beaten that of the Dow 30 also. The more I look at this approach the better I like it.
It's possible, but it requires a behavioral change from investors. No checking quotes daily. Set it and forget it, don't look at your statements. Buying companies you understand well ("know what you own") is probably a prerequisite, so that you don't get tempted to sell by market volatility.
51% of investors still believe that it is a good time to invest in stocks, mutual funds, ETF's and other stocks cos the S&P 500 is still up 10% this year..I want to spread across $400k into profit yielding dividend equities but unsure of my safest buys
Consider hiring financial advisors, estate planners or tax experts. They can provide specialized knowledge and help you navigate complex financial decisions in such times as we're facing today.
Agreed, instead of panic or following a hearsay, I simply adopted the service of an advisor early 2020 amid covid-outbreak, and so far, I've attained my most measurable financial milestone of $650k after subsequent investments.
I have been working with "MONICA SELENA PARK" whose expertise in portfolio diversification is unsurpassed and client-focused, I have made more profits with her guidance than I ever did when I tried navigating the markets on my own.
Thank you for this tip , I must say, Monica appears to be quite knowledgeable. After coming across her web page, I went through her resume and I must say, it was quite impressive. I reached out and scheduled a call
10 year average annual return of a few popular ETFs. $VTI - Total US Market -12.1% $VOO - S&P 500 - 12.5% $QQQ - Nasdaq 100 - 16.2% $VGT - Technology - 17.8% $SCHD - Dividends - 13.7% $VDE - Energy - 5.0% Which will lead the next 10 years?
My "boring" index funds just paid me over $6,000 in dividends last month. This is money that i can choose to spend without having to sell any of my shares. But for now i have it all set to reinvest to buy me even more index funds.
Anyone have recommendations for a reliable monthly investment? I hope to ultimately supplement my income from work with a monthly income from investments. I will still make long-term investments, but it would be wonderful to have a little additional money each month.
@@kashkat987 Even if we are not accustomed to such volatile markets with a little carnage, the widespread frenzy and worry are understandable given that the US Stock Market has been on its longest bull run in history. However, there are opportunities everywhere if you know where to look; with the help of an investment advisor whom helped diversify my portfolio I netted over $360k in profits the previous year.
@@kashkat987 I have "LISA ELLEN SHAW" as my investment advisor. She has a solid reputation in her field and is a true genius when it comes to diversified portfolios, which help portfolios be less vulnerable to market downturns. She may be a name you are already familiar with; a Newsweek piece helped me to do so. She's a Google-able person.
There is a survivor bias here. There could have been a 4 other widows who's husbands did something similar but they picked crappy stocks or were unlucky. Those widows didn't see enough money to justify talking to an advisor.
As a professional myself I could write a lot about the pros and cons of the different investment behaviour but the bottom line is clear: You'r more right than wrong by letting stock grow indefinitely in your portfolio. Imagine then if you could filter out the relatively few stocks that generate most of the return of the SPX (Bessenbinder study) let them run and you will soon own this World, or a least a junk of it! By the way that's the reason why portfolios of deceased persons when left untouched usually do show a very good performance.
In the past it was true. But how long might you need to wait from now for it to be true in the future? Not much point in having to wait 50 years if we're all gonna be dead.
Nice! I've got a coffee can full of various bank stocks purchased the week after SVB. The hardest thing in the world is not doing anything. Some have skyrocketed, others have dropped, but overall it's already much more than the original investment. The plan is to leave it alone for a minimum of one year, and up to ten years if it plays out like 2008.
I feel sad that even though I am investing, I don't have the brain power to dig through how each company is doing, is this a good time to buy stocks or not, my reserve of $150K is laying waste to inflation and I don't know what to do at this point tbh, I need solid data on market trajectory..
I'm in exactly the same situation. In fact the sum of money is similar. My best advice is to do what Ben Graham advises in The Intelligent Investor. That is feed in your 150k at regular intervals to the stock market. The best way to do this is through a low cost tracker or etf. This is a golden opportunity to do so with stocks being at more reasonable prices. Once you start buying say every month you'll feel better if the market drifts down because you'll be getting more for your money by dollar cost averaging.
Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $520K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further.
The main problem is that most folks don’t care about anything other than football, Basketball and Music etc. They find it normal to take credit card debt which will cost them 20% per year but considers it risky to invest their money and make 10% or more per month. Learning to avoid high interest debt while also learning how to put your money to work for you by investing is a very powerful combo.
Starting out with a professional that knows the ropes of the choppy but profitable market is the best way to achieve getting a well structured portfolio. That’s why I have been working with 'BRIDGET MARY TUROW" because in financial dealings one has to be prudent. Most traders enter and exit with a quick 10% profit which is not bad in general opinion but why not make more of the opportunities presented?.
@@mayacho4910She looks the part. BRIDGET MARY really seems to know her stuff. Out of curiosity i looked her up, found her web~page, and decided to read through her resume, educational background, qualifications and it was really impressive. She is a fiduciary who will act in my best interest. So, I booked a session with her.
Thank you Nathan, this was superinteresting! It impressively confirms that buy and hold Kostolany-style can still be a great strategy nowadays, as long as we are well diversified into solid businesses for the most part. A few speculative positions, even if they go to zero, won't hurt overall performance substantially in the long run.
@@NathanWinklepleckCFA This is something we European investors are likely more familiar with: Andre Kostolany was a Hungarian investor who followed a buy and hold strategy. He suggested to buy stocks, not follow them nervously but take a sleeping pill instead - and wake up after a couple of years as a rich man. ;-)
It's because of the dividends. As long as you can keep rolling the dividends over you will do well. Without the compounding effect of the dividends it's not effective. If you were to buy 100k worth of dividend stocks and sell under the money calls a year or two out you could create the same type of scenario.
Thanks again Nathan for a great informative video. Your sound reasoning and calm demeanor provides such a wonderful service to all of us. You also have a great ability to stay away from the sensationalistic messages out there which are so easy to get trapped into. My own experience is a confirmation of this video's message. When I've created my own portfolio of stocks from a group of companies considered solid investments at the time and left them alone, they have always out performed when I try to outthink the market. Lazy seems to work out in this case. Thanks for all you provide. ....oh and tell those kids banging at the door to have some patience (speaking as one who's had a home office most of his life). Haha.
Thanks a lot, David! I'm glad I can be of service to you and others. :) Do you do individual stocks or are you in funds? (And I did hear that when I listened to edit, but figured it added some character to the video so I left it in!! LOL)
@@NathanWinklepleckCFA I am invested in both individual stocks (including ETFs) and funds. I've been in this thing for a quite a few years and what I have learned (after some painful lessons) over time is that the information you share on here is really really good stuff. I wish I would have had something like this when I started into investing. With older kids now, I'm trying to help them limit some of the painful mistakes I made by sharing what I've learned and refer them to resources like you. Advice like yours will help them form a great foundation for investing. ...and so glad you left it in the video, definitely added character and a slice of real life.
Hi Nathan, thanks for the great content once again! How do you see the Coffee Can strategy aligns with recurring investing (let's say a pre-defined allocation monthly)? I have mostly seen buy and hold strategies which predefines a % for each company and invest over the lowest percentages every month, WITHOUT selling winner (but also without investing more on them in order to manage risk). How do you view such strategy.
how to build a Coffee Can portfolio in Canada ? should we chose top 10 companies on TSX 60 set and forget? please do a video on that if you get a chance thanks.
Thanks, John! I'm glad you enjoyed it. Hopefully not everyone going to buy it... honestly, makes no sense. Why not just copy the fund exactly and save yourself the 0.5% fee?! Or, I guess, just re-create it yourself for 2022. Maybe I'll try that on another video...
Hi Nathan, wow, i found your channel yesterday and quite blown away! These are some interesting facts and really opened my eyes. When I match these scenarios with my investment plan, the only caveat I find is I've 25 stocks that I but each month with a fixed amount of money rather than putting a lump sum at the beginning and do nothing. I don't know how my strategy is going to work in the future, on the other hand, I don't have much capital at hand to invest and forget about it. Doing DCA is the only way I can do invest. Any thoughts?
Great video & research! I can tell you that coffee can doesn't work in every investing domain. For example - precious metals. Because there are fixed ratios between the prices of precious metals, letting your winners win results in diminishing returns over time. I've back-tested this approach. The best strategy with precious metals is to maintain a fixed % in each, adjusting every year. Your strategy should fit your own context.
This is amazing advice for ultra long term holds. 10+ years AT LEAST to ride of the vol. What’ll be interesting to learn is how many flat or near flat 5 year return periods we’ve had in the s&p. There’s so much about holding during the down times in the younger crowd that’s never witnessed a protected recession. Wonder how levered the top gun retail investors are and how the revolution across the equities creates a circular impact of price correction.
I use a macd on two time different time frames for brk/B. The trick is the shorter MACD timeframe pulled me out of MARKET downturns (this beats buy and hold). YOU need to figure out what time frames for MACD WORK BEST. So you get above average using Brk/B and by get out of down in the market. That is a win, win, and win.
Very very interesting video. Recently, I have been thinking a lot about whether to invest in losing stocks to balance out. But changing my mind. Also went back and checked my 401k vs personal portfolio. Man this is so true my personal is low compared to sp500 but my 401k where I didn’t touch anything is outperforming sp500
fun video Nathan. I invested early, when i was around 20, and took out my gains to afford college, now im in debt and have just recently bought into the marked again, hopefully I can try to remember this video as the years go along, and i can cut off losers completly and invest more in my winners. (as i Think that makes more sense than keeping th positions, even as they can only lose the inital investment, but if you invest whatever is left of the postion into another company, that company has now the cahnce to become a winner for you) A problem im thinkin gis when should you look at the numbers, one year, two years, or three, after the initial investment, and should you kep adding founds to the winners even after lets say 6 months. Many good experiments to run. I am not a good stock picker, but im a good consumer. so ill start there :)
Mind you, two years is too short a time to draw much in the way of conclusions. Outperformance may be due to momentum and momentum reversal effects, for example.
“An investment portfolio is like a bar of soap; the more you touch it, the smaller it gets” So many people think that they need to be constantly moving stuff around in their portfolio. Good information
The S&P 500 moved 8.9% higher in November, achieving one of its best monthly performances in history.. which is an indicator for profits to continue to improve. I just want my money to keep outgrowing the inflation rate. I'm still looking for companies to make additions to my $350K portfolio, to boost performance. Here for ideas...
Off course, but Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional.
You are completely right, Advisors have information and paths that are not disclosed to the public.. I profited £560k in 2022 under the tutelage of my Fiduciary-counselor. Am I selling? Absolutely not.. I am going to sit back and observe how this all plays out.
*@heathermellon7826* I've been thinking about going that route. I have a lot of stocks that I have maintained, but they are beginning to lose value, so I'm not sure if I should hold onto them or sell them. I feel hiring your investment coach would make it easier to restructure my portfolio.
This makes sense even though the rebalancing is what we were taught. Recently my portfolio manager put me in an oil stock tourmaline oil TSX : Tou about 20% of my portfolio ( by accident not design) it is up by 87% this year! So of course he has rebalanced it… probably should’ve let it ride. Thx for this.
Thanks for your research. My portfolio management is very much like the coffee can method except I double my investment in a stock whenever it goes up 10% from the original value. I never add money to losers. I call my method "Show Me The Money".
Price is what you pay; value is what you get. Coffee can strategy will work well over time if you buy/recognize good value stocks vs overpriced stocks.
Matthew Effect. Winners tend to keep winning (autocorrelation?). I wonder if your rebalanced the other way, taking out losers and reallocating to winners.
Interesting to note, though BRK is widely touted as carrying 20% CAGR since its inception, in the past 40 years or so it performs around 14%. Maybe the reversion to the mean is taking its effect.
managing 1-25m is different than managing over a half trillion dollars. at a certain point you become limited by size. this narrative makes more sense than saying that it's just plain old mean reversion.
@@amandasmith1920 While it's a fact that managing that much money usually lowers the performance, doesn't that mean the market as a whole (who knows, trillions of dollars) performs EXACTLY the same as the market itself, as benchmarked by S&P 500, for example. That means, there are funds that are performing way higher, and there are those that are much lower... and at the end of the day, they're better off...maybe... by investing in an index fund. Wo knows.. Still, reversion to the mean is much more logical. Say it what you want, but the funds' performance reverted, be it because a larger inflow, a wrong strategy (usually blamed by managers..), or just plain bad luck.. who knows. And come to think of it, the idea of investing or trading in general is to grow money. IF at a certain threshold the money can't be grown anymore, for fear of impeding performance, then you put that extra cash to something else, safer, let's say bonds, but with lower returns... hence lower performance anyway, *as a whole*.
@@amandasmith1920 The basic premise is, for everyone who buys, there must be another who sells. If the one who buys wins, then the one who sells loses. Unless we're talking about buy and hold, or forget...or die... I think Warren Buffett said it best. The return of the stock market is not in the price; he might not even care if the stock exchange is open today or closed for 2 decades. He said the return is in the goods & services produced by the companies, which turn into profits. Strong, versatile, and growing businesses, you hold them forever. Otherwise you win, and you lose, and you win, and you lose, and so on. But who's to say these businesses will stay forever, 50, 100 years? Maybe that's the reason to hold an index fund. But in the end, as the Buddha said, there's nothing permanent, countries and empires rise and fall. Races and species go extinct.... But if we worry about that, we won't achieve nothing. Just paranoia. So live the moment. Invest or trade, active or passive, just live the moment.
One of the surest ways to make sure you don't sell your securities is to put them into some exchange like FTX that was started by the mega-philanthropist Sam Bankman Fried. You could put it all in FTT tokens and never have to worry about selling out as its buy-hold forever.
My first comment ever on youtube. Really impressed by the quality of your videos. I would be really interested in understanding how to DCA monthly according to this strategy. Do you continue to split equally between all 50 stocks too or do you focus on the ones that drop most to average down?
Thanks a lot, Arnaud! And thanks for making your first comment on my channel; I'm honored. I'm not sure how a DCA would work here. I think you would probably buy 50 new stocks or 30 new stocks or whatever based on your updated views. So you wouldn't just continue buying, say, IBM if you bought it 10 years ago but now it doesn't meet your criteria. Does that make any sense?
@@NathanWinklepleckCFA that’s not really DCA’ing at all then. Because you wouldn’t be averaging your cost in the things you’d bought before. You need to DCA in an index/ETF, like SPY or QQQ
Good one. Return on invested capital or roe are a thing and letting your winners ride makes some sense. This is basically an uncapped s&p500 etf though so not clear how this is winning.
@@NathanWinklepleckCFA holding an index essentially is holding onto a basket of stocks that keeps the companies so long as they’re growing but also drops off the losers. Besides low fees, It’s why index investing works. Companies with large roic rise to the top over time. Look at Msft, appl, google being weighted some of the highest. Ok I admit Tesla being the exception but that’ll drop off when reality hits and some better roic company comes on. Wins over time.
Otherwise we have to assume we find one of the small advisors who beat the market and choose 50 stocks which has already proven to be demonstrably lower. I do agree that holding winners longer term makes sense rather than rebalancing if you know how to pick stocks based on cash returns and return on capital.
You can channel trade the S&P500 and out perform the S&P500. Even more if you are brave enough to use leveraged ETFs. You can out perform the average mutual fund simply by throttling investments in the S&P500. You don't have to buy and hold until you are dead nor do you need to be dependent on some investment firm. Just buy the S&P500. What you are saying is not wrong it's just not good for most people. Beyond that who wants to be a millionaire when they are dead.
Dynamite video again! I wonder, would this strategy work with etfs in a similar way? If it is a well-constructed etf (like schd or dgro), do you think it would reap similar benefits?
Thanks, Tyler! They would be close, I'd say! The only difference would likely be the starting initial weights being diluted by such a large number of holdings that the material benefits from having a few winners concentrate themselves in 30 years wouldn't be there as much.
Plus, it would have to be an ultra-low turnover ETF. Most ETFs -- including VIG, SCHD, etc. -- would sell positions once they violated certain criteria.
What's the roll here of survivorship bias? I.e. how many coffee can portfolios have people come back to 20 years later to discover underperformance rather than overperformance?
Interesting. I work with an advisor and he bought into different asset classes like fixed income bonds indexes etc. But in your examples there is no such things. My point is, show you also included these with your clients? I’m just curious here about different investments strategies.
I second this, fire your advisor. If he didn’t explain to you in very clear detail why he did this, get rid of him. He should also explain to you in great detail why he deserves his AUM fee. It’s called modern portfolio theory, widely adopted academic approach using standard deviation (just as our professional described in the video). There is plenty of literature on the subject.
What happens to stocks that crash, burn and disappear. How many companies that were huge decades ago, no longer exist. Also, companies had VERY different ideas about investing years ago, thinking about 5, 10 years ahead vs now concentrating on day trading and quarterly reports. Completely different animal. We didn't have a global economy as much and outsourcing to other nations wasn't a thing and China was not in the equation
But if you're a coffee can investor, how do you deal with additional investments? Surely people are investing more money over time than just once. Do you buy more of the same stock? Or a new stock each time? What if you have a dividend account? Do you auto invest it only into the stock the dividend came from or all the stocks in the portfolio? I'm not sure if something like M1 lets you invest only into the stock the dividend came from.
2:48 I'm reading O'Neil's "How to Make Money in Stocks" and he insists that people sell their losers and add to their winners, exactly the opposite of what you are showing here, the opposite of rebalancing. This is great. I can see where you are going with this. I can't wait to see what the husband does.
@@NathanWinklepleckCFA You're right! i read it from one of Buffett's annual reports, but he got it from Peter Lynch. I never knew that :D Thanks for the really interesting video.
Didn't read all the comments listed. May I summerized this video to these comments: Should you rebalance? If so, how should someone measure your success / failure?
This is an interesting and thought provoking video. But it muddies the waters for investors. The simple solution is to invest in one of the following three index funds or ETFs : S&P 500. Global Developed Index, Global All Country Index. Lexington is an interesting case but is analogous to a 100 year old who has smoked 60 cigarettes for his/her whole life. What about all the others who've died? - just like all the other funds which have been dissolved. Would you really have over a third of your investments in one US railroad? And as for Coffee Can - hardly a great choice if you had invested in Japanese stocks in 1989 when they were 45% of the Global market, to take one example. Simple Index Funds are the way to go for most investors which adapt to changing situations. If you were investing for your grandchildren would you really choose Lexington (which you would have to monitor) or an Index Fund with hundreds or thousands of companies? As psychologists remind us the pain of loss is far more important than the pleasure of gain - so keep it simple. But my message is far too boring for a UA-cam video ...
As usual Nathan very insightful video. The coffee can portfolio works well in my view because: i) one buys those stocks at very low price, considering the time span; ii) time allows to sort the wheat from the chaff so to speak; and finally iii) those business that outperform the other become bigger and weight more in the portfolio while the underperforming just wither away. Here is a challenge for your out-the-box-thinking using some of the principles you have outlined here and it other videos. We are approaching a potential depression era market collapse, or at least that's what many people predicts. My guess is that a 50% drop is in the card, as the S&P 500 is -20% and the rate hike has only started. If such an event actually materialize, what would be the ideal portfolio to buy when we finally hit bottom?
Thanks, J YH! I'm glad you found it interesting. Isn't Lexington great?! I love that story so much. It's probably one of my absolute favorites, particularly since no one really knows about it... :D
The future is unpredictable and complex. Trying to control it is futile. Remember: 3/4 of active funds underperform the S&P 500. Do yourself a favour and find a tracker, invest every month and spend the time you would’ve wasted trying to play the stock market into something that fills your soul.
Its not about just about rebalancing or not!What would be intessting if we would only rebalancing every 5 years or every 10years and if we would invest the dividents into random new stocks!
Thanks, Ivan! I think you'd just buy a basket of stocks or ETFs or whatever was in your coffee can and then just continue buying new things every month to put in there. The point is not to never buy anything again, it's just to never sell anything again! (Or, at least, to not sell it for a very very very long time.)
People just can't believe that doing nothing after the initial investment can be an investment strategy. New investors, especially, grip on to the idea that complicated must be good. The guys with six monitors, watching Level 2 and a live news feed are my fave. I had a friend years ago who at age 20 inherited $170,000 when his father died. He dropped out of college and spent $2,000 taking a trading class and then lost all of it within a year day trading options.
Ouch! :/ Maybe you should send him this video! :D LOL Tell him to become a coffee can investor and he can make that $170k back in no time. (And I mean no time as in 30 years.)
That is sad. But I have a relative that inherited almost the same amount of money. It was gone in a year, but a lot of it went to casinos and loans to barmaids. LOL.
now i'm a full time options trader have been now for 15 years , and find it very easy to make anywhere from 100% to 500% gains in a day especially in volitile liquid stocks like TSLA this stock is a daytraders dream its intraday moves are wild, but i do agree with your sentiment NOBODY should be day trading options without many many years of expeience in the trenches and even then most still lose......its very much a mental game most cannot handle the wild swings. And i'm one of those guys with 6 monitors and live feeds..lol😎
@@NathanWinklepleckCFA you will be surprised actually many folk i know in the industry trade short term options and make a killing, one thing you will not find them on UA-cam ...lol , everybody has their own secret system (i will take my system to my death bed and not reveal what I'm doing my biggest fear is if you tell people it will stop working) but there are ways to cheat the Markets especially in the Options world, its all about IV and Market breadth and how the Market Makers price the option contracts according to historical volatility and current volatility. Good luck.
Don’t wait until the market skyrocket again then you start biting your fingers wishing you made the decision to invest. bought my third house already, earn on a monthly through passive income and got 4 out of 5 goals, just hope it encourages someone that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless your age INVEST and change your future! Investing in the financial market is a grand choice I made. Great video! Thanks for sharing! Very inspiring! I love this
I invest across the crypt0 markets but not by myself though. i follow the guidelines of Wayne Himelsein. you might have heard of him.. I can correctly say he’s worth his salt as a investment advisor. as his Analysis/tradlng skills are top notch, I say this because i see that in his results as my portfolio grows by averages of 20 to 3O% on a monthly basis, unlike i can say for my IRA which has just been trudging along. my portfolio just mirrors what trades he places and not just on some particular coin of my choosing.he gave me that financiaI freedom I needed
@@NathanWinklepleckCFA I used to think similarly, but under the right circumstances with the potential gain being massive it is very much worth risking some tiny percentage of my portfolio in my opinion. TQQQ started a little less than a year after the 2009 market bottom and is up 6840% as of now and has been up substantially more than that prior to the recent decline. The market so far has rarely gone down by more than 50%. If investing say 1% of my portfolio only if the nasdaq declines by 50% with the potential gain being thousands of percent in a relatively short amount of time and the downside losing that 1% allocation to me that makes a lot of sense. Losing 1% wouldn't change my financial situation at all and a gain that enormous would increase my portfolio size by a very meaningful amount. If the 50% decline doesn't happen then I wouldn't buy. There would probably be plenty of time to sell in the years following a decline that large. That is my triple levered plan. I've looked at some research someone else did and they concluded that TQQQ would have declined by 99.95% during the 2000 to 2002 bear market. So it has to be sold prior to such a decline. Someone who does want to just buy and hold a levered etf through everything would be much better off using a 2x etf with a small allocation. QLD the 2x QQQ etf started in 2006 then went through the drawdown to the 2009 bottom and is well ahead of QQQ's returns from inception through today.
Hi Nathan, this video really speaks to me. I hear the advice to rebalance your portfolio on a regular basis for the sake of diversification and exposure so often. Having your winners balance out your portfolio weighting is such an simple and elegant mindset. Winners usually keep winning, and losers rarely become turnaround plays. I wonder if you could shed some light on how many stocks you think a modern investment portfolio with this strategy should have? Ive just started my first job out of university and am able to make considerable monthly contributions to my portfolio. Should I concentrate the coffee can on my highest conviction plays, or simply keep adding names for diversification and exposure to more industries?
Fin - I’m really glad to hear that! I can’t say for sure what you should do with this method; it’s so incredibly not-well-researched that there is no general consensus view. I think there are many ways to do it and you’ve hit on a few. I think which you choose depends on your confidence level with stock selection. If you’re a better stock picker, then concentrating your capital on your best ideas and then letting them go forever (i.e.: Buffett’s strategy at Berkshire, for the most part) would be ideal. However, if you do a poor job picking stocks, that method could lead to you increase your risk. I’m starting an approach that focuses on buying 33 stocks per month based on some pre-set criteria and then just letting it go for at least a decade, adding to it monthly. That balances risk decently, in my view. If you’re interested in following along, I’ll be posting another video about it next week. (I just posted one this week about my experiment that start in May 2020.) Stay in touch… I’d love to track you on your journey!
And I would define “risk” here as your risk of underperformance. Betting heavily on just 20 or 30 names carries a great deal of big upside potential, but also risk that a broader index could beat you unless you’re skilled at your research… up to you which path to take! To offset that risk, another idea would be to split between buying a broadly diversified index - i.e.: VTI or VT - and then using the remainder of your capital to bet big on your highest conviction stock ideas. That way, you’re getting diversification via VTI but also getting some major exposure to your best ideas. Then, after about 5-10 years, you can compare to see how your stock picking is going. If it’s not going well, then you could just convert to entire index funds.
@@NathanWinklepleckCFA Thank you so, so much for your detailed answer! I'll be diving into whatever little research there is on this topic and try to form my own strategy. I've been investing for about two years and somewhat naturally settled on an 70/30 division of individual companies/ETFs, due to my stock picks outperforming the indexes and considering I'm in my mid-twenties and can take more risks. I reckon I need to experience a full stock market cycle, with all the highs and lows, before I can confidently say I can pick stocks well. I'm reaching about 20 individual stocks, where I've trimmed and rebalanced once they reach my 'fair value' and portfolio weighting of 10%. I feel like I'm cutting flowers but there's always new opportunities and I feel I'm managing risk this way. I''ll keep a close eye on your content, thanks once again and keep up the good work!
@@NathanWinklepleckCFA Thanks. Just a heads up: the video promoting your patreon is put on private. I was checking it out to get an idea of the benefits
Great video! Enjoyed it. I have owned 4 stocks on ASX for past 15 yrs, have done nothing and have beat ASX 200 index. Another part of my portfolio that has DESTROYED the s&p 500 is bitcoin even with the volatility. There’s obviously less history to go by with bitcoin however and you don’t get the dividends.
@@NathanWinklepleckCFA you don’t look too old lol I think I’m probably older. The Bitcoin Standard by Saidedean Ammous is a book on the topic that I enjoyed. Bitcoin is a non productive asset however. More like buying a commodity I guess. Not for everyone.
If you don't get dividends, it's not an investment. It's speculation. A miniscule number will make out like bandits, and the rest will lose their shirts. The S&P IS "the market". Bitcoin is one form of a technology. Which do you think will still be around in thirty years, generating BOTH growth and dividends? Smarter people than me, like Warren Buffett and Jack Bogle, who created the index fund, and founded Vanguard, have said that for the average investor, the S&P 500 is as close to a sure thing as you are ever going to get. I think Buffett qualified it by saying, "next to Berkshire Hathaway", but even they hold a big chunk in the S&P.
@@Grimenoughtomaketherobotcry your right it doesn’t offer dividends, it’s not a business, it’s the most secure digital decentralised sound money network in the world. It’s stateless money essentially. an insurance fund against fiat monetary debasement. There are investments other then productive assets priced in fiat. There are stores of value, Bitcoin is in that camp, fine art, collectibles, vintage cars, commodities, Bitcoin is currently in that camp with the addition of network effects and the growth of its use as money over time. The number of coins going off exchange into cold storage is steadily rises and growth of new wallets is faster then growth of new internet users. If you want yield then Bitcoin is not for you but try preaching the uselessness of store of value commodities to the people of countries where their currency has hyperinflated
@@JimJamJuicy Not only does "stablecoin" technology run the risk of becoming obsolete by the development of a new technology, it also faces very real threats from Governments looking to regulate it (crypto has cost them BIG revenue) and central bank digital currencies looking to eliminate it (their protestations to the contrary). All central banks and national governments jealously protect their turf over far less consequential issues. Why would anyone think that they'd just run up the white flag in the face of crypto? Central Bank Digital Currency is slotted to be launched probably sooner rather than later, and there will in all likelihood be even more restrictions placed on crypto when that happens, reducing it's attraction even further. Between the technical and political problems that will likely overwhelm crypto, I think most people will opt to stick with fiat, real or DC, rather than accept the ongoing risks associated with crypto.
Nathan thanks a lot for your content. I'm currently reading O'Shaughnessy book "What works on Wall Street" and experimenting with the Tiny Titans screen. These stocks have strong momentum and P/S of less than 1. Holding this portfolio in this market has been difficult. I also take into account governance and dividend yield. According to the book the return is 22.33%. Would you be willing to take a look?
@@NathanWinklepleckCFA When they are up and the market is down I like to taking profits. Hoping to make money off the high beta. The year thing just seems very unscientific and some of the stocks are issuing new shares which really concern me. Mostly to do acquisitions. Except for the marine stocks they are down 13% which is what I would expect in this market.
I think this is legit. In my 35 year investing career, I have made some small investments which if I had left them alone, would be worth more than my current net worth.
This is no surprise. Brokers need to eat and transactions feed them as wrap fees do today. Charlie Munger said it, "Buy shares in good companies at a fair price or better and sit on your hands." The other thing to consider is taxes, especially avoiding taxes by stepping up the basis at Mr. Coffee Cans death. Patience is what it takes and the lack of it is investors undoing and underperforming. Today, it is avoiding fees and the underwhelming "advisors" who live off them and contribute nothing.
They would be close, I'd say! The only difference would likely be the starting initial weights being diluted by such a large number of holdings that the material benefits from having a few winners concentrate themselves in 30 years wouldn't be there as much.
Interesting. By owning an index fund like the S&P 500, isn't this a somewhat similar strategy to the coffee can? Losers get churned out, winners are brought in - to continue their run up? Primary risk of the coffee can would be dumb luck of owning 50 dogs (or whatever number it is)....vs. picking that rare large winner.
It's somewhat similar, but the S&P 500 has bought and sold thousands of stocks over the years... most similar would be VTI where you just own everything. Then the only difference is that the big winners don't contribute as much because they are so diluted by other holdings. It seems the best chance for success would be to optimize the # of stocks so you minimize chances of picking so many dogs, but you also semi-maximize your potential for a few big winners to make a meaningful difference. My sense is that 30 is too few and more than 100 might be too many. 50 seems like a pretty good sweet spot. But there is still that risk that you do choose 50 dogs.
Wonder how your revision to the magic formula would have done if you never sold or re-balanced anything and instead just ran the screener every time you were ready to contribute money and forgot about it.
@@NathanWinklepleckCFA good question! What I meant was if you sell shares in a company where the shares have gone to increase holdings and others, you have to pay tax on the gain, meaning that the aggregate holdings of the rebalanced portfolio is less than before by the amount of tax paid. However, you can mitigate this if you actually sell the shares where you made losses and then re-purchase them, as well as the extras needed for rebalancing. Or am I missing something fundamental?
What do you think about the coffee can portfolio? Do you think it would work? Why or why not? Thanks for watching! If you're interested in more content, you can join me on Patreon! www.patreon.com/nathanwinklepleck
arxiv.org/pdf/2201.00223.pdf another way to make my while sleeping - buy the stock index at close and sell at open = make 100% of total returns / Buy at open, Sell at close = make negative returns
It’s possible, but probably easier to just do an ETF and be done with it
As a thought experiment, I took the 1995 Dogs of the Dow (the earliest year I could find) and tried to track the results if you had bought an equal dollar amount of the ten stocks and held them to the present. It wasn't as easy as I had hoped because of splits and acquisitions, but it looks like the coffee can approach would have beaten the DJIA handily. The Dow is up about 300% but the '95 Dogs look like they're up about 450%. Didn't track dividends, but since they had highest dividends in 1995, it's probably a reasonable bet that their dividend stream would have beaten that of the Dow 30 also. The more I look at this approach the better I like it.
It's possible, but it requires a behavioral change from investors. No checking quotes daily. Set it and forget it, don't look at your statements. Buying companies you understand well ("know what you own") is probably a prerequisite, so that you don't get tempted to sell by market volatility.
It works because the fees are very low and you dont have to buy more from hyped up stocks!
51% of investors still believe that it is a good time to invest in stocks, mutual funds, ETF's and other stocks cos the S&P 500 is still up 10% this year..I want to spread across $400k into profit yielding dividend equities but unsure of my safest buys
Consider hiring financial advisors, estate planners or tax experts. They can provide specialized knowledge and help you navigate complex financial decisions in such times as we're facing today.
Agreed, instead of panic or following a hearsay, I simply adopted the service of an advisor early 2020 amid covid-outbreak, and so far, I've attained my most measurable financial milestone of $650k after subsequent investments.
my partner’s been considering going the same route, could you share more info please on the advisor that guides you
I have been working with "MONICA SELENA PARK" whose expertise in portfolio diversification is unsurpassed and client-focused, I have made more profits with her guidance than I ever did when I tried navigating the markets on my own.
Thank you for this tip , I must say, Monica appears to be quite knowledgeable. After coming across her web page, I went through her resume and I must say, it was quite impressive. I reached out and scheduled a call
10 year average annual return of a few popular ETFs.
$VTI - Total US Market -12.1%
$VOO - S&P 500 - 12.5%
$QQQ - Nasdaq 100 - 16.2%
$VGT - Technology - 17.8%
$SCHD - Dividends - 13.7%
$VDE - Energy - 5.0%
Which will lead the next 10 years?
My "boring" index funds just paid me over $6,000 in dividends last month. This is money that i can choose to spend without having to sell any of my shares. But for now i have it all set to reinvest to buy me even more index funds.
Anyone have recommendations for a reliable monthly investment? I hope to ultimately supplement my income from work with a monthly income from investments. I will still make long-term investments, but it would be wonderful to have a little additional money each month.
@@kashkat987 Even if we are not accustomed to such volatile markets with a little carnage, the widespread frenzy and worry are understandable given that the US Stock Market has been on its longest bull run in history. However, there are opportunities everywhere if you know where to look; with the help of an investment advisor whom helped diversify my portfolio I netted over $360k in profits the previous year.
@@IAMBETTERTHANYYOU Please let me know your investment adviser's name and how i can reach he/she?
@@kashkat987 I have "LISA ELLEN SHAW" as my investment advisor. She has a solid reputation in her field and is a true genius when it comes to diversified portfolios, which help portfolios be less vulnerable to market downturns. She may be a name you are already familiar with; a Newsweek piece helped me to do so. She's a Google-able person.
There is a survivor bias here. There could have been a 4 other widows who's husbands did something similar but they picked crappy stocks or were unlucky. Those widows didn't see enough money to justify talking to an advisor.
Survivorship bias is what wrecks most people. Humans see success and ignore millions more cases of catastrophic failures far too often.
unless over the aggregate the sell recommendations were harmful which is completely possible.
Exactly.
@@JohnSmith-bs9ym thats the seen vs the unseen
How about just buy all 500 stocks of the S&P 500?
Very interesting and well explained. . Thanks, subscribed.
As a professional myself I could write a lot about the pros and cons of the different investment behaviour but the bottom line is clear: You'r more right than wrong by letting stock grow indefinitely in your portfolio. Imagine then if you could filter out the relatively few stocks that generate most of the return of the SPX (Bessenbinder study) let them run and you will soon own this World, or a least a junk of it! By the way that's the reason why portfolios of deceased persons when left untouched usually do show a very good performance.
The SP100 (OEX) does not outperform the SP500. A few smaller companies in the SP500 have massive gains, which results in the outperformance of SP100
In the past it was true. But how long might you need to wait from now for it to be true in the future? Not much point in having to wait 50 years if we're all gonna be dead.
Over the past 5 years, the S&P 100 did 92% vs the S&P 500's 78%.
It's outperformed since 1995, aswell.
The coffee can portfolio beats the S&P 500 if you manage to buy good companies. If you don’t buy good companies it performs poorly.
Exaaaaaaaaaaactly...
Really enjoying your videos, hard to find such authentic content!
Wow, thanks a lot Rene!
Nice! I've got a coffee can full of various bank stocks purchased the week after SVB. The hardest thing in the world is not doing anything. Some have skyrocketed, others have dropped, but overall it's already much more than the original investment. The plan is to leave it alone for a minimum of one year, and up to ten years if it plays out like 2008.
Great Post ! Thank you!
Watched and liked, thanks!
Appreciate you, Jason! Thanks!
great job man
I feel sad that even though I am investing, I don't have the brain power to dig through how each company is doing, is this a good time to buy stocks or not, my reserve of $150K is laying waste to inflation and I don't know what to do at this point tbh, I need solid data on market trajectory..
I'm in exactly the same situation. In fact the sum of money is similar.
My best advice is to do what Ben Graham advises in The Intelligent Investor. That is feed in your 150k at regular intervals to the stock market. The best way to do this is through a low cost tracker or etf.
This is a golden opportunity to do so with stocks being at more reasonable prices.
Once you start buying say every month you'll feel better if the market drifts down because you'll be getting more for your money by dollar cost averaging.
If you dont know what to buy follow Buffets's advice and dollar cost average into S&P 500 etf.
Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $520K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further.
The main problem is that most folks don’t care about anything other than football, Basketball and Music etc. They find it normal to take credit card debt which will cost them 20% per year but considers it risky to invest their money and make 10% or more per month. Learning to avoid high interest debt while also learning how to put your money to work for you by investing is a very powerful combo.
The one effective technique I'm confident nobody admits to using, is staying in touch with an Investment-Adviser.
Starting out with a professional that knows the ropes of the choppy but profitable market is the best way to achieve getting a well structured portfolio. That’s why I have been working with 'BRIDGET MARY TUROW" because in financial dealings one has to be prudent. Most traders enter and exit with a quick 10% profit which is not bad in general opinion but why not make more of the opportunities presented?.
@@mayacho4910She looks the part. BRIDGET MARY really seems to know her stuff. Out of curiosity i looked her up, found her web~page, and decided to read through her resume, educational background, qualifications and it was really impressive. She is a fiduciary who will act in my best interest. So, I booked a session with her.
Identifying lucrative investments can get you ahead in no time, in years of Investing, my portfolio has experience immense growth, because i did so.
Another gem, Nathan. Thanks so much.
Thanks, Rob! I really enjoyed making this one.
Unrelated to the good video but just finished reading your book dividend growth machine and I have to say that was amazing. Life changing stuff.
I'm glad you found it helpful! :D
a cef like BME has return of of %11.7 annually since inception in 2005 with dividend reinvested. UTF has done the same
Thank you Nathan, this was superinteresting! It impressively confirms that buy and hold Kostolany-style can still be a great strategy nowadays, as long as we are well diversified into solid businesses for the most part. A few speculative positions, even if they go to zero, won't hurt overall performance substantially in the long run.
Thanks, Christoph! I'm glad you found it interesting. I've never heard of "Kostonlany-style"... what is that?
@@NathanWinklepleckCFA This is something we European investors are likely more familiar with: Andre Kostolany was a Hungarian investor who followed a buy and hold strategy. He suggested to buy stocks, not follow them nervously but take a sleeping pill instead - and wake up after a couple of years as a rich man. ;-)
This aligns with what WB said about not selling your winners - sell your losers, buy more of the winners, he said.
GE was a big winner,and look at them now!
It's because of the dividends. As long as you can keep rolling the dividends over you will do well. Without the compounding effect of the dividends it's not effective. If you were to buy 100k worth of dividend stocks and sell under the money calls a year or two out you could create the same type of scenario.
Thanks again Nathan for a great informative video. Your sound reasoning and calm demeanor provides such a wonderful service to all of us. You also have a great ability to stay away from the sensationalistic messages out there which are so easy to get trapped into. My own experience is a confirmation of this video's message. When I've created my own portfolio of stocks from a group of companies considered solid investments at the time and left them alone, they have always out performed when I try to outthink the market. Lazy seems to work out in this case. Thanks for all you provide. ....oh and tell those kids banging at the door to have some patience (speaking as one who's had a home office most of his life). Haha.
Thanks a lot, David! I'm glad I can be of service to you and others. :) Do you do individual stocks or are you in funds? (And I did hear that when I listened to edit, but figured it added some character to the video so I left it in!! LOL)
@@NathanWinklepleckCFA I am invested in both individual stocks (including ETFs) and funds. I've been in this thing for a quite a few years and what I have learned (after some painful lessons) over time is that the information you share on here is really really good stuff. I wish I would have had something like this when I started into investing. With older kids now, I'm trying to help them limit some of the painful mistakes I made by sharing what I've learned and refer them to resources like you. Advice like yours will help them form a great foundation for investing. ...and so glad you left it in the video, definitely added character and a slice of real life.
Hi Nathan, thanks for the great content once again! How do you see the Coffee Can strategy aligns with recurring investing (let's say a pre-defined allocation monthly)?
I have mostly seen buy and hold strategies which predefines a % for each company and invest over the lowest percentages every month, WITHOUT selling winner (but also without investing more on them in order to manage risk). How do you view such strategy.
Great stuff, thanks!
Glad you enjoyed it! :)
how to build a Coffee Can portfolio in Canada ? should we chose top 10 companies on TSX 60 set and forget? please do a video on that if you get a chance thanks.
Fascinating! thanks for sharing this. it makes a lot of sense actually. looking forward to the next part.
Glad you enjoyed it! Hoping to get next one out this week :)
Excellent video Nathan! Amazing numbers from the 1935 fund. Everyones going to be looking into that now lol. Enjoyed watching buddy 👍
Thanks, John! I'm glad you enjoyed it. Hopefully not everyone going to buy it... honestly, makes no sense. Why not just copy the fund exactly and save yourself the 0.5% fee?! Or, I guess, just re-create it yourself for 2022. Maybe I'll try that on another video...
Hidden gem channel! 💎
Thanks Susy!
Hi Nathan, wow, i found your channel yesterday and quite blown away! These are some interesting facts and really opened my eyes. When I match these scenarios with my investment plan, the only caveat I find is I've 25 stocks that I but each month with a fixed amount of money rather than putting a lump sum at the beginning and do nothing. I don't know how my strategy is going to work in the future, on the other hand, I don't have much capital at hand to invest and forget about it. Doing DCA is the only way I can do invest. Any thoughts?
I’m a stat driven investor, really like your content 👍🏻
Thanks, Darrell!
My question is if you have to DCA small amounts each month but you wanted to let this ride and not rebalance how would you do that?
Very informative. Thanks!
My pleasure!
Great video & research! I can tell you that coffee can doesn't work in every investing domain. For example - precious metals. Because there are fixed ratios between the prices of precious metals, letting your winners win results in diminishing returns over time. I've back-tested this approach. The best strategy with precious metals is to maintain a fixed % in each, adjusting every year. Your strategy should fit your own context.
Great point, Dan 🙌
I grew up as an investor hearing that "buy and hold" is dead. Wish I never believed that one.
A more interesting approach would be simulating this every year and compare the average of all the years set and forget to the snp
Yeah, fascinating information, Waiting for next one. I wonder you might have probability & statistics majors!
I don't, but I did take some courses and CFA has lots of stats in it. :)
This is amazing advice for ultra long term holds. 10+ years AT LEAST to ride of the vol. What’ll be interesting to learn is how many flat or near flat 5 year return periods we’ve had in the s&p.
There’s so much about holding during the down times in the younger crowd that’s never witnessed a protected recession. Wonder how levered the top gun retail investors are and how the revolution across the equities creates a circular impact of price correction.
What is a protected recession?
I use a macd on two time different time frames for brk/B. The trick is the shorter MACD timeframe pulled me out of MARKET downturns (this beats buy and hold). YOU need to figure out what time frames for MACD WORK BEST. So you get above average using Brk/B and by get out of down in the market. That is a win, win, and win.
What?
Very very interesting video. Recently, I have been thinking a lot about whether to invest in losing stocks to balance out. But changing my mind.
Also went back and checked my 401k vs personal portfolio. Man this is so true my personal is low compared to sp500 but my 401k where I didn’t touch anything is outperforming sp500
Is your 401k in individual stocks or funds?
Is it worth to invest in TIP's ETF's like SCHP, in this market environment ?
I want next video right now!
Haha I’ll try to get it next week! ;)
How are your long term holdings doing since the market (SPY) has been in a down trend since Jan.2022?
fun video Nathan. I invested early, when i was around 20, and took out my gains to afford college, now im in debt and have just recently bought into the marked again, hopefully I can try to remember this video as the years go along, and i can cut off losers completly and invest more in my winners. (as i Think that makes more sense than keeping th positions, even as they can only lose the inital investment, but if you invest whatever is left of the postion into another company, that company has now the cahnce to become a winner for you) A problem im thinkin gis when should you look at the numbers, one year, two years, or three, after the initial investment, and should you kep adding founds to the winners even after lets say 6 months. Many good experiments to run.
I am not a good stock picker, but im a good consumer. so ill start there :)
Long story short: let your winnings run!
Mind you, two years is too short a time to draw much in the way of conclusions. Outperformance may be due to momentum and momentum reversal effects, for example.
True, but lots of other evidence with many decades of data.
“An investment portfolio is like a bar of soap; the more you touch it, the smaller it gets”
So many people think that they need to be constantly moving stuff around in their portfolio. Good information
I love that quote! It's definitely true that most people do wwwaaaayyyy too much to their portfolios.
so can you tell us clearly....what is your stock holdings?
The S&P 500 moved 8.9% higher in November, achieving one of its best monthly performances in history.. which is an indicator for profits to continue to improve. I just want my money to keep outgrowing the inflation rate. I'm still looking for companies to make additions to my $350K portfolio, to boost performance. Here for ideas...
Off course, but Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional.
You are completely right, Advisors have information and paths that are not disclosed to the public.. I profited £560k in 2022 under the tutelage of my Fiduciary-counselor. Am I selling? Absolutely not.. I am going to sit back and observe how this all plays out.
*@heathermellon7826* I've been thinking about going that route. I have a lot of stocks that I have maintained, but they are beginning to lose value, so I'm not sure if I should hold onto them or sell them. I feel hiring your investment coach would make it easier to restructure my portfolio.
CAMILLE ALICIA GARCIA maintains an online presence. Just make a simple search for her name online.
I checked Camille up out of curiosity and I must say I am impressed by her Credentials. I emailed her already, waiting on her response.
This makes sense even though the rebalancing is what we were taught. Recently my portfolio manager put me in an oil stock tourmaline oil TSX : Tou about 20% of my portfolio ( by accident not design) it is up by 87% this year! So of course he has rebalanced it… probably should’ve let it ride.
Thx for this.
Thanks for your research. My portfolio management is very much like the coffee can method except I double my investment in a stock whenever it goes up 10% from the original value. I never add money to losers. I call my method "Show Me The Money".
I like that idea a lot! Basically you’re watering your flowers and not your weeds, just like Peter Lynch suggested. :)
Price is what you pay; value is what you get. Coffee can strategy will work well over time if you buy/recognize good value stocks vs overpriced stocks.
That's right! It's important to find value, but also not obsess over lower quality / lower P/E stocks. Value OVER TIME is most important.
Great strategy as long as you have decades to let it work.
Not even sure it will work... if the initial portfolio does not have of the big winners, it will underperform severely.
Matthew Effect. Winners tend to keep winning (autocorrelation?).
I wonder if your rebalanced the other way, taking out losers and reallocating to winners.
That would be interesting!
Short answer is to not water your weeds. Great video.
Exactly ;)
Same for health. Doing nothing/ eating nothing. Same for brain health: Think nothing= BEST OUTCOME. Nothing WINS!!! LESS=More
Interesting to note, though BRK is widely touted as carrying 20% CAGR since its inception, in the past 40 years or so it performs around 14%.
Maybe the reversion to the mean is taking its effect.
managing 1-25m is different than managing over a half trillion dollars.
at a certain point you become limited by size.
this narrative makes more sense than saying that it's just plain old mean reversion.
@@amandasmith1920 While it's a fact that managing that much money usually lowers the performance, doesn't that mean the market as a whole (who knows, trillions of dollars) performs EXACTLY the same as the market itself, as benchmarked by S&P 500, for example. That means, there are funds that are performing way higher, and there are those that are much lower... and at the end of the day, they're better off...maybe... by investing in an index fund. Wo knows..
Still, reversion to the mean is much more logical. Say it what you want, but the funds' performance reverted, be it because a larger inflow, a wrong strategy (usually blamed by managers..), or just plain bad luck.. who knows.
And come to think of it, the idea of investing or trading in general is to grow money. IF at a certain threshold the money can't be grown anymore, for fear of impeding performance, then you put that extra cash to something else, safer, let's say bonds, but with lower returns... hence lower performance anyway, *as a whole*.
@@amandasmith1920 The basic premise is, for everyone who buys, there must be another who sells. If the one who buys wins, then the one who sells loses. Unless we're talking about buy and hold, or forget...or die...
I think Warren Buffett said it best. The return of the stock market is not in the price; he might not even care if the stock exchange is open today or closed for 2 decades. He said the return is in the goods & services produced by the companies, which turn into profits. Strong, versatile, and growing businesses, you hold them forever. Otherwise you win, and you lose, and you win, and you lose, and so on. But who's to say these businesses will stay forever, 50, 100 years? Maybe that's the reason to hold an index fund. But in the end, as the Buddha said, there's nothing permanent, countries and empires rise and fall. Races and species go extinct.... But if we worry about that, we won't achieve nothing. Just paranoia. So live the moment. Invest or trade, active or passive, just live the moment.
One of the surest ways to make sure you don't sell your securities is to put them into some exchange like FTX that was started by the mega-philanthropist Sam Bankman Fried. You could put it all in FTT tokens and never have to worry about selling out as its buy-hold forever.
LOL
My first comment ever on youtube. Really impressed by the quality of your videos. I would be really interested in understanding how to DCA monthly according to this strategy. Do you continue to split equally between all 50 stocks too or do you focus on the ones that drop most to average down?
Thanks a lot, Arnaud! And thanks for making your first comment on my channel; I'm honored. I'm not sure how a DCA would work here. I think you would probably buy 50 new stocks or 30 new stocks or whatever based on your updated views. So you wouldn't just continue buying, say, IBM if you bought it 10 years ago but now it doesn't meet your criteria. Does that make any sense?
How about only invest index using DCA monthly?
@@NathanWinklepleckCFA that’s not really DCA’ing at all then. Because you wouldn’t be averaging your cost in the things you’d bought before. You need to DCA in an index/ETF, like SPY or QQQ
Good one. Return on invested capital or roe are a thing and letting your winners ride makes some sense. This is basically an uncapped s&p500 etf though so not clear how this is winning.
What do you mean by an uncapped S&P 500?
@@NathanWinklepleckCFA holding an index essentially is holding onto a basket of stocks that keeps the companies so long as they’re growing but also drops off the losers. Besides low fees, It’s why index investing works. Companies with large roic rise to the top over time. Look at Msft, appl, google being weighted some of the highest. Ok I admit Tesla being the exception but that’ll drop off when reality hits and some better roic company comes on. Wins over time.
Otherwise we have to assume we find one of the small advisors who beat the market and choose 50 stocks which has already proven to be demonstrably lower. I do agree that holding winners longer term makes sense rather than rebalancing if you know how to pick stocks based on cash returns and return on capital.
I would like to see a video on the 5 stock portfolios you created and forgot about!
Just made one this past week/ :)
I just wonder why the video randomly flips horizontally..?
You can channel trade the S&P500 and out perform the S&P500. Even more if you are brave enough to use leveraged ETFs. You can out perform the average mutual fund simply by throttling investments in the S&P500. You don't have to buy and hold until you are dead nor do you need to be dependent on some investment firm. Just buy the S&P500. What you are saying is not wrong it's just not good for most people. Beyond that who wants to be a millionaire when they are dead.
Dynamite video again! I wonder, would this strategy work with etfs in a similar way?
If it is a well-constructed etf (like schd or dgro), do you think it would reap similar benefits?
Thanks, Tyler!
They would be close, I'd say! The only difference would likely be the starting initial weights being diluted by such a large number of holdings that the material benefits from having a few winners concentrate themselves in 30 years wouldn't be there as much.
Plus, it would have to be an ultra-low turnover ETF. Most ETFs -- including VIG, SCHD, etc. -- would sell positions once they violated certain criteria.
1) Buy and Hold
2) Dont punish your winners!
What's the roll here of survivorship bias? I.e. how many coffee can portfolios have people come back to 20 years later to discover underperformance rather than overperformance?
Companies come and go , good ones even have a lifespan, sticking with sp500 at least kicks out the failing companies eventually.
Interesting.
I work with an advisor and he bought into different asset classes like fixed income bonds indexes etc.
But in your examples there is no such things.
My point is, show you also included these with your clients?
I’m just curious here about different investments strategies.
Fire your advisor.
I second this, fire your advisor. If he didn’t explain to you in very clear detail why he did this, get rid of him.
He should also explain to you in great detail why he deserves his AUM fee.
It’s called modern portfolio theory, widely adopted academic approach using standard deviation (just as our professional described in the video). There is plenty of literature on the subject.
Big 401k fund found the same think: Buy hold and do nothing beats S&P.
Fidelity?
What happens to stocks that crash, burn and disappear. How many companies that were huge decades ago, no longer exist. Also, companies had VERY different ideas about investing years ago, thinking about 5, 10 years ahead vs now concentrating on day trading and quarterly reports. Completely different animal. We didn't have a global economy as much and outsourcing to other nations wasn't a thing and China was not in the equation
But if you're a coffee can investor, how do you deal with additional investments? Surely people are investing more money over time than just once. Do you buy more of the same stock? Or a new stock each time? What if you have a dividend account? Do you auto invest it only into the stock the dividend came from or all the stocks in the portfolio? I'm not sure if something like M1 lets you invest only into the stock the dividend came from.
2:48 I'm reading O'Neil's "How to Make Money in Stocks" and he insists that people sell their losers and add to their winners, exactly the opposite of what you are showing here, the opposite of rebalancing. This is great. I can see where you are going with this. I can't wait to see what the husband does.
Selling winners to rebalance into losers is what warren Buffett calls pulling up the flowers and watering the weeds
Peter Lynch :)
@@NathanWinklepleckCFA You're right! i read it from one of Buffett's annual reports, but he got it from Peter Lynch. I never knew that :D
Thanks for the really interesting video.
Didn't read all the comments listed. May I summerized this video to these comments: Should you rebalance? If so, how should someone measure your success / failure?
This is an interesting and thought provoking video. But it muddies the waters for investors. The simple solution is to invest in one of the following three index funds or ETFs : S&P 500. Global Developed Index, Global All Country Index. Lexington is an interesting case but is analogous to a 100 year old who has smoked 60 cigarettes for his/her whole life. What about all the others who've died? - just like all the other funds which have been dissolved. Would you really have over a third of your investments in one US railroad? And as for Coffee Can - hardly a great choice if you had invested in Japanese stocks in 1989 when they were 45% of the Global market, to take one example. Simple Index Funds are the way to go for most investors which adapt to changing situations. If you were investing for your grandchildren would you really choose Lexington (which you would have to monitor) or an Index Fund with hundreds or thousands of companies? As psychologists remind us the pain of loss is far more important than the pleasure of gain - so keep it simple. But my message is far too boring for a UA-cam video ...
As usual Nathan very insightful video.
The coffee can portfolio works well in my view because: i) one buys those stocks at very low price, considering the time span; ii) time allows to sort the wheat from the chaff so to speak; and finally iii) those business that outperform the other become bigger and weight more in the portfolio while the underperforming just wither away.
Here is a challenge for your out-the-box-thinking using some of the principles you have outlined here and it other videos.
We are approaching a potential depression era market collapse, or at least that's what many people predicts. My guess is that a 50% drop is in the card, as the S&P 500 is -20% and the rate hike has only started. If such an event actually materialize, what would be the ideal portfolio to buy when we finally hit bottom?
Those guys at Voya are charging a 0.5% fee to do literally nothing. lol
SO interesting! Coffee can investing..
Lexington is fascinating.. It’s like an investing time capsule. 👍🏼 👍🏼
Thanks, J YH! I'm glad you found it interesting. Isn't Lexington great?! I love that story so much. It's probably one of my absolute favorites, particularly since no one really knows about it... :D
The future is unpredictable and complex. Trying to control it is futile. Remember: 3/4 of active funds underperform the S&P 500.
Do yourself a favour and find a tracker, invest every month and spend the time you would’ve wasted trying to play the stock market into something that fills your soul.
Its not about just about rebalancing or not!What would be intessting if we would only rebalancing every 5 years or every 10years and if we would invest the dividents into random new stocks!
Good idea 👍
Such an interesting video! QUESTION: How would you Coffee Can along with a DCA strategy? Buy according to new market weight?
Thanks, Ivan! I think you'd just buy a basket of stocks or ETFs or whatever was in your coffee can and then just continue buying new things every month to put in there. The point is not to never buy anything again, it's just to never sell anything again! (Or, at least, to not sell it for a very very very long time.)
People just can't believe that doing nothing after the initial investment can be an investment strategy. New investors, especially, grip on to the idea that complicated must be good. The guys with six monitors, watching Level 2 and a live news feed are my fave. I had a friend years ago who at age 20 inherited $170,000 when his father died. He dropped out of college and spent $2,000 taking a trading class and then lost all of it within a year day trading options.
Ouch! :/ Maybe you should send him this video! :D LOL Tell him to become a coffee can investor and he can make that $170k back in no time. (And I mean no time as in 30 years.)
That is sad. But I have a relative that inherited almost the same amount of money. It was gone in a year, but a lot of it went to casinos and loans to barmaids. LOL.
now i'm a full time options trader have been now for 15 years , and find it very easy to make anywhere from 100% to 500% gains in a day especially in volitile liquid stocks like TSLA this stock is a daytraders dream its intraday moves are wild, but i do agree with your sentiment NOBODY should be day trading options without many many years of expeience in the trenches and even then most still lose......its very much a mental game most cannot handle the wild swings. And i'm one of those guys with 6 monitors and live feeds..lol😎
@@paulcampbell1596 You are a rare breed, indeed, if you can actually make any money doing that.
@@NathanWinklepleckCFA you will be surprised actually many folk i know in the industry trade short term options and make a killing, one thing you will not find them on UA-cam ...lol , everybody has their own secret system (i will take my system to my death bed and not reveal what I'm doing my biggest fear is if you tell people it will stop working) but there are ways to cheat the Markets especially in the Options world, its all about IV and Market breadth and how the Market Makers price the option contracts according to historical volatility and current volatility. Good luck.
Don’t wait until the market skyrocket again then you start biting your fingers wishing you made the decision to invest. bought my third house already, earn on a monthly through passive income and got 4 out of 5 goals, just hope it encourages someone that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless your age INVEST and change your future! Investing in the financial market is a grand choice I made. Great video! Thanks for sharing!
Very inspiring! I love this
Thanks, Eli! Sounds like you should start a channel! ;$
I invest across the crypt0 markets but not by myself though. i follow the guidelines of Wayne Himelsein. you might have heard of him.. I can correctly say he’s worth his salt as a investment advisor. as his Analysis/tradlng skills are top notch, I say this because i see that in his results as my portfolio grows by averages of 20 to 3O% on a monthly basis, unlike i can say for my IRA which has just been trudging along. my portfolio just mirrors what trades he places and not just on some particular coin of my choosing.he gave me that financiaI freedom I needed
You can reach Wayne on Tele-gram @ (WayneHimelsein) take care!
Try invest in TQQQ and SPXL compare to index or stocks
I’ll never touch anything leveraged 3x.
@@NathanWinklepleckCFA I used to think similarly, but under the right circumstances with the potential gain being massive it is very much worth risking some tiny percentage of my portfolio in my opinion.
TQQQ started a little less than a year after the 2009 market bottom and is up 6840% as of now and has been up substantially more than that prior to the recent decline. The market so far has rarely gone down by more than 50%. If investing say 1% of my portfolio only if the nasdaq declines by 50% with the potential gain being thousands of percent in a relatively short amount of time and the downside losing that 1% allocation to me that makes a lot of sense. Losing 1% wouldn't change my financial situation at all and a gain that enormous would increase my portfolio size by a very meaningful amount.
If the 50% decline doesn't happen then I wouldn't buy. There would probably be plenty of time to sell in the years following a decline that large. That is my triple levered plan.
I've looked at some research someone else did and they concluded that TQQQ would have declined by 99.95% during the 2000 to 2002 bear market. So it has to be sold prior to such a decline.
Someone who does want to just buy and hold a levered etf through everything would be much better off using a 2x etf with a small allocation. QLD the 2x QQQ etf started in 2006 then went through the drawdown to the 2009 bottom and is well ahead of QQQ's returns from inception through today.
Hi Nathan, this video really speaks to me. I hear the advice to rebalance your portfolio on a regular basis for the sake of diversification and exposure so often. Having your winners balance out your portfolio weighting is such an simple and elegant mindset. Winners usually keep winning, and losers rarely become turnaround plays.
I wonder if you could shed some light on how many stocks you think a modern investment portfolio with this strategy should have? Ive just started my first job out of university and am able to make considerable monthly contributions to my portfolio. Should I concentrate the coffee can on my highest conviction plays, or simply keep adding names for diversification and exposure to more industries?
Fin - I’m really glad to hear that! I can’t say for sure what you should do with this method; it’s so incredibly not-well-researched that there is no general consensus view. I think there are many ways to do it and you’ve hit on a few. I think which you choose depends on your confidence level with stock selection. If you’re a better stock picker, then concentrating your capital on your best ideas and then letting them go forever (i.e.: Buffett’s strategy at Berkshire, for the most part) would be ideal. However, if you do a poor job picking stocks, that method could lead to you increase your risk. I’m starting an approach that focuses on buying 33 stocks per month based on some pre-set criteria and then just letting it go for at least a decade, adding to it monthly. That balances risk decently, in my view. If you’re interested in following along, I’ll be posting another video about it next week. (I just posted one this week about my experiment that start in May 2020.) Stay in touch… I’d love to track you on your journey!
And I would define “risk” here as your risk of underperformance. Betting heavily on just 20 or 30 names carries a great deal of big upside potential, but also risk that a broader index could beat you unless you’re skilled at your research… up to you which path to take! To offset that risk, another idea would be to split between buying a broadly diversified index - i.e.: VTI or VT - and then using the remainder of your capital to bet big on your highest conviction stock ideas. That way, you’re getting diversification via VTI but also getting some major exposure to your best ideas. Then, after about 5-10 years, you can compare to see how your stock picking is going. If it’s not going well, then you could just convert to entire index funds.
@@NathanWinklepleckCFA Thank you so, so much for your detailed answer! I'll be diving into whatever little research there is on this topic and try to form my own strategy. I've been investing for about two years and somewhat naturally settled on an 70/30 division of individual companies/ETFs, due to my stock picks outperforming the indexes and considering I'm in my mid-twenties and can take more risks.
I reckon I need to experience a full stock market cycle, with all the highs and lows, before I can confidently say I can pick stocks well. I'm reaching about 20 individual stocks, where I've trimmed and rebalanced once they reach my 'fair value' and portfolio weighting of 10%. I feel like I'm cutting flowers but there's always new opportunities and I feel I'm managing risk this way.
I''ll keep a close eye on your content, thanks once again and keep up the good work!
@@fin8927 You're clearly very mature for your age. I think you're going to do very well no matter what you do!
@@NathanWinklepleckCFA Thanks. Just a heads up: the video promoting your patreon is put on private. I was checking it out to get an idea of the benefits
dont you have to pay capital gains tax when companies merge and your shares change. pretty sure these don't take that into account.
Yes, I think you're right.
“Letting your winners win”
Spot on!
Your set appears to be haunted by a ghost that keeps switching the positions of your lamp and picture.
Yes, that is unfortunate. I should find someone to come help me with that! ;)
Great video! Enjoyed it. I have owned 4 stocks on ASX for past 15 yrs, have done nothing and have beat ASX 200 index. Another part of my portfolio that has DESTROYED the s&p 500 is bitcoin even with the volatility. There’s obviously less history to go by with bitcoin however and you don’t get the dividends.
Yeah, I don't buy Bitcoin because I don't understand it. I'm too old, I guess... :)
@@NathanWinklepleckCFA you don’t look too old lol I think I’m probably older. The Bitcoin Standard by Saidedean Ammous is a book on the topic that I enjoyed. Bitcoin is a non productive asset however. More like buying a commodity I guess. Not for everyone.
If you don't get dividends, it's not an investment. It's speculation. A miniscule number will make out like bandits, and the rest will lose their shirts. The S&P IS "the market". Bitcoin is one form of a technology. Which do you think will still be around in thirty years, generating BOTH growth and dividends? Smarter people than me, like Warren Buffett and Jack Bogle, who created the index fund, and founded Vanguard, have said that for the average investor, the S&P 500 is as close to a sure thing as you are ever going to get. I think Buffett qualified it by saying, "next to Berkshire Hathaway", but even they hold a big chunk in the S&P.
@@Grimenoughtomaketherobotcry your right it doesn’t offer dividends, it’s not a business, it’s the most secure digital decentralised sound money network in the world. It’s stateless money essentially. an insurance fund against fiat monetary debasement. There are investments other then productive assets priced in fiat. There are stores of value, Bitcoin is in that camp, fine art, collectibles, vintage cars, commodities, Bitcoin is currently in that camp with the addition of network effects and the growth of its use as money over time. The number of coins going off exchange into cold storage is steadily rises and growth of new wallets is faster then growth of new internet users. If you want yield then Bitcoin is not for you but try preaching the uselessness of store of value commodities to the people of countries where their currency has hyperinflated
@@JimJamJuicy Not only does "stablecoin" technology run the risk of becoming obsolete by the development of a new technology, it also faces very real threats from Governments looking to regulate it (crypto has cost them BIG revenue) and central bank digital currencies looking to eliminate it (their protestations to the contrary). All central banks and national governments jealously protect their turf over far less consequential issues. Why would anyone think that they'd just run up the white flag in the face of crypto? Central Bank Digital Currency is slotted to be launched probably sooner rather than later, and there will in all likelihood be even more restrictions placed on crypto when that happens, reducing it's attraction even further. Between the technical and political problems that will likely overwhelm crypto, I think most people will opt to stick with fiat, real or DC, rather than accept the ongoing risks associated with crypto.
Nathan thanks a lot for your content. I'm currently reading O'Shaughnessy book "What works on Wall Street" and experimenting with the Tiny Titans screen. These stocks have strong momentum and P/S of less than 1. Holding this portfolio in this market has been difficult. I also take into account governance and dividend yield. According to the book the return is 22.33%. Would you be willing to take a look?
What has been difficult about holding it, would you say? How much is it down so far this year?
@@NathanWinklepleckCFA When they are up and the market is down I like to taking profits. Hoping to make money off the high beta. The year thing just seems very unscientific and some of the stocks are issuing new shares which really concern me. Mostly to do acquisitions. Except for the marine stocks they are down 13% which is what I would expect in this market.
Nathan, check out CET. Been around since 1929.
Central Securities Corproation?
@@NathanWinklepleckCFA Yes, that's the one.
Baron’s Partners Fund is also proof of the ‘coffe can’ ‘set and forget’ strategy. I suppose it all depends on the make up of the original portfolio.
I'll check it out; thanks for the tip!
@@NathanWinklepleckCFA forgot to mention how much I enjoy your way of presenting and your analysis. Bravo
I think this is legit. In my 35 year investing career, I have made some small investments which if I had left them alone, would be worth more than my current net worth.
This is no surprise. Brokers need to eat and transactions feed them as wrap fees do today.
Charlie Munger said it, "Buy shares in good companies at a fair price or better and sit on your hands."
The other thing to consider is taxes, especially avoiding taxes by stepping up the basis at Mr. Coffee Cans death. Patience is what it takes and the lack of it is investors undoing and underperforming.
Today, it is avoiding fees and the underwhelming "advisors" who live off them and contribute nothing.
A good advisor provides more that 3% of value per year to somebody who otherwise doesnt know what they’re doing. It’s well documented.
Coffee can is 100% based on luck. If you miss the 3-4 winners at the start and you just get losers or sub par companies, you are destoyed for life.
100% based on luck if I do a bunch of coin flips. Since I'm actively selecting them based on X criteria, it's not based on luck.
Investor I meet pay Zero Fica Taxes Zero income tax thanks to Long term capital gains and right offs they get paid a Divided from the Company
What's that?
Didn't WB sell apple and regret it?
I don't think he's sold it. Only trimmed it.
Why not apply coffee can to midcaps and just hold
You could try. Would be interesting for sure!
@@NathanWinklepleckCFA would u recommend just bjying one share of each, or balancing it by percentage
@@NathanWinklepleckCFA i bought 1 stock of each, from 501 to 701, by market cap.
for me no money because the man
I feel freedom
?
Would very low turnover etfs be close to mimicking the coffee can strategy?
They would be close, I'd say! The only difference would likely be the starting initial weights being diluted by such a large number of holdings that the material benefits from having a few winners concentrate themselves in 30 years wouldn't be there as much.
Interesting. By owning an index fund like the S&P 500, isn't this a somewhat similar strategy to the coffee can? Losers get churned out, winners are brought in - to continue their run up? Primary risk of the coffee can would be dumb luck of owning 50 dogs (or whatever number it is)....vs. picking that rare large winner.
It's somewhat similar, but the S&P 500 has bought and sold thousands of stocks over the years... most similar would be VTI where you just own everything. Then the only difference is that the big winners don't contribute as much because they are so diluted by other holdings. It seems the best chance for success would be to optimize the # of stocks so you minimize chances of picking so many dogs, but you also semi-maximize your potential for a few big winners to make a meaningful difference. My sense is that 30 is too few and more than 100 might be too many. 50 seems like a pretty good sweet spot. But there is still that risk that you do choose 50 dogs.
Wonder how your revision to the magic formula would have done if you never sold or re-balanced anything and instead just ran the screener every time you were ready to contribute money and forgot about it.
That would be interesting!
In the balancing approach gains and losses, cancel each other out, so there is no tax implications?
What?
@@NathanWinklepleckCFA good question! What I meant was if you sell shares in a company where the shares have gone to increase holdings and others, you have to pay tax on the gain, meaning that the aggregate holdings of the rebalanced portfolio is less than before by the amount of tax paid. However, you can mitigate this if you actually sell the shares where you made losses and then re-purchase them, as well as the extras needed for rebalancing. Or am I missing something fundamental?
@@NathanWinklepleckCFA …gone up… to increase holdings in others…
@@NathanWinklepleckCFA P.S. I live in a country where you don’t have to pay taxes and just wonder how it works if you live somewhere where are you do
Only pay tax if you sell at a gain in US. Where do you live?