Mauboussin on Strategy: The Coffee Can Approach

[dcollon]

http://contenta.mkt1710.com/lp/26966/115068/D10717TheCoffeeCanApproach.pdf

[biaggio]

Thanks for posting.

 

Always good to be reminded that most times (assuming you made the correct choice to begin with) it is best to do nothing.

 

What do folks here feel are good "Coffee Can buys" for the next 10-20 years?

 

 

[RRJ]

JNJ below 60 - currently available.  PEP a bit lower from here. 

[Spekulatius]

That’s an interesting way to do it - buying a random stock every two weeks:

https://finance.yahoo.com/news/beer-billionaire-jim-koch-buys-210559882.html

Edited August 9, 2023 by Spekulatius

[dwy000]

1 hour ago, Spekulatius said:

That’s an interesting way to do it - buying a random stock every two weeks:

https://finance.yahoo.com/news/beer-billionaire-jim-koch-buys-210559882.html

Chances are it would still beat what we are all trying to do here.

[backtothebeach]

The returns should be equal to an equal weight index. Except this part, which should give a nice edge:

"Every fortnight, she cashes in any losing positions, then randomly picks a single stock to buy from a list of indices including the S&P 500 and Russell 2000."

 

Cutting the weeds...the opposite of averaging down, difficult to do. Reminds me of the Reverse Scale strategy I read about years ago, and only tried once - with great success by the way.

Reverse scale investing: Buy a basket of e.g. 8 stocks from the same industry/sector. Every three months sell the worst performer(s) and buy more of the top performer(s).

 

I did this with agriculture stocks in the depth of the financial crisis 2009, thinking that no matter what happens, people will still have to eat. The winning stock had the ticker CNH, I think the company got taken over in the end, after tripling/quadrupling.

[Spekulatius]

4 hours ago, backtothebeach said:

The returns should be equal to an equal weight index. Except this part, which should give a nice edge:

"Every fortnight, she cashes in any losing positions, then randomly picks a single stock to buy from a list of indices including the S&P 500 and Russell 2000."

 

Cutting the weeds...the opposite of averaging down, difficult to do. Reminds me of the Reverse Scale strategy I read about years ago, and only tried once - with great success by the way.

Reverse scale investing: Buy a basket of e.g. 8 stocks from the same industry/sector. Every three months sell the worst performer(s) and buy more of the top performer(s).

 

I did this with agriculture stocks in the depth of the financial crisis 2009, thinking that no matter what happens, people will still have to eat. The winning stock had the ticker CNH, I think the company got taken over in the end, after tripling/quadrupling.

Well, an equal weighted index fund will constantly rebalance while a coffee can will not (except for taking tax losses) so over time the returns will differ a lot. Also, with eh coffee can approach a lot of the returns will depend on what was picked early on.

 

My guess the loser will be decided based on the tax loss that can be monetized, because fundamentally the losing stock could be the random stock pick at the same time as well.

[Xerxes]

Buffett on technicians, gurus and level-headed monkeys
 

[backtothebeach]

1 hour ago, Spekulatius said:

Well, an equal weighted index fund will constantly rebalance while a coffee can will not (except for taking tax losses) so over time the returns will differ a lot.

 

You're right, not sure why I thought equal weight would be comparable.

[Spekulatius]

3 hours ago, backtothebeach said:

 

You're right, not sure why I thought equal weight would be comparable.

I had to think about a bit to determine that it's not equivalent.

 

This equal weighted index thing sounds compelling but then I think about all the winners that need to be constantly trimmed and loses that need to be added to and I am not sure it's better than market cap weighted indexing.

 

I thought that it would be an interesting idea to start an equal weighted fund at certain times (once a year?) and not rebalance. That would be an interesting experiment but I think it could only be done in a closed end fund and then you have to deal with discounts to NAV.