Doc's note: "It is truly one of the differences between the rich and the poor."
Today, Matt McCall – senior editor at our corporate affiliate InvestorPlace – explains the powerful lesson "coffee can knowledge" teaches us... and why it's critical to investing success.
You remember coffee cans, right?
Now that our days are filled with Starbucks trips and single-serve "K-Cups," it's easy to forget that large coffee cans were once fixtures in millions of American homes.
It might sound funny, but coffee cans can teach us an extremely powerful investment lesson. They're behind an enlightened way of thinking that could help you get rich in the kinds of stocks I cover in my research services.
Specifically, we employ a "venture capitalist" mindset, where "coffee can knowledge" is especially important.
When it comes to extreme wealth creation, few endeavors can compare to ownership of a small company that grows large. An early investor in Microsoft could have made more than 9,000% during the 1990s. That type of gain turns every $5,000 invested into $450,000.
It only takes one of these big hits to make a huge amount of money in early-stage companies – that is why the venture capitalist mindset is so important.
Venture capitalists are the early bakers of startup companies. They are the grand-slam home-run hitters of the investment world. They don't look to make 300% on their investments – they look to make 3,000%... even 30,000%. Make just one great venture-capital investment and you'll probably never have to worry about money again.
"Coffee can knowledge" is critical to this kind of success. It is truly one of the differences between the rich and the poor.
Here's what I'm talking about...
The coffee can story is most famously recounted by Robert Kirby, an investment manager from days past.
Kirby wrote that, "The coffee can portfolio concept harkens back to the Old West, when people put their valuable possessions in a coffee can and kept it under the mattress."
The coffee can method of portfolio management is simple: You buy high-quality businesses with promising futures.
But instead of doing what many folks do – which is check on share prices every day, fret constantly about the portfolio's short-term performance, and trade in and out of shares – you do nothing but sit on the portfolio for years.
You stuff your shares in a figurative coffee can, put the can in the cupboard, and ignore it for long stretches of time.
The coffee can idea came to Kirby while he was working at an investment firm. He had a client whose husband, a lawyer, had died. The client inherited the stock portfolio, which she brought to Kirby. Kirby writes:
I was amused to find that he had been secretly piggybacking our recommendations for his wife's portfolio. Then I looked at the size of the estate. I was also shocked. The husband had applied a small twist of his own to our advice: He paid no attention whatsoever to the sale recommendations. He simply put about $5,000 in every purchase recommendation. Then he would toss the certificate in his safe-deposit box and forget it.
By ignoring any "sell" advice and socking the shares away, the husband had allowed a kind of wealth creation magic to happen...
Sure, there were some losers in the portfolio, worth less than $2,000. But he had several large holdings worth more than $100,000 each. And get this: there was also one giant holding worth more than $800,000. That massive return was born from a small investment in Haloid, which became a large amount of Xerox shares.
This utterly inactive portfolio approach stands in stark contrast to how most individual investors manage their money. They jump in and out of stocks, take profits too early, get too impatient, worry over meaningless day-to-day stock movements, and check price quotes all day.
Most folks would be better off managing their stocks like the lawyer from Kirby's story: Buy good, promising companies and sit on them.
I can't tell this story without also mentioning Fidelity's client study from years ago. Fidelity studied client accounts that had the best returns. It found that the top-performing accounts were owned by folks who forgot they had an account with the investment firm.
This was reportedly an internal study. There were no announcements from Fidelity, so I can't be certain that it took place – but I wouldn't be surprised if that's the case at most investment firms and brokerages.
The Path to Extreme Wealth Creation
In my investing services, we take a venture capital-style approach... We buy small, promising businesses with the potential to massively increase in value.
However, those massive increases in value don't happen overnight.
That's why sitting tight with the coffee can approach in mind is often the most useful thing we can do on any given day.
I have had my own personal experiences that have helped me understand and believe in the merits behind the coffee can approach.
In 2003 at the ripe age of 27, I started my first investment firm, Penn Financial. I couldn't have done it without my first client, a former consultant at my prior company who had told me he would be my first client if I ever went out on my own. I took the gamble and have never looked back.
With only a few clients, every investment was that much more important. One of the first stocks I ever bought for my Penn Financial clients was a little-known, surgical-robotics company called Intuitive Surgical. At the time, in early 2004, the stock traded around $15 per share ($5 split adjusted).
In a few short weeks, it rallied to around $20 (pre-split), and the position was quickly up over 30%. Annualized out, we were looking at a big, triple-digit gain.
Even though I believed the company was in its infancy stages, I felt the quick, extra 30% was too much to risk losing, and I decided to bank the profit and make my clients happy. And yes, they were very happy... at the time.
Over the next 15 years, Intuitive Surgical became the global surgical-robotics leader. Adjusted for a stock split in 2017, the stock increased from the $5 entry in 2004 to a high of $589 in April 2019. That's nearly a 11,700% return.
Every $5,000 invested in Intuitive Surgical in 2004 would have been worth nearly $600,000. Every $10,000 would have been close to $1.2 million.
I wish I had utilized the coffee can approach in 2004.
It is never too late. Odds are high that we'll find more Intuitive Surgicals in the coming years.
Editor's note: Matt specializes in the coffee can approach – finding early stage opportunities that could lead to 1,000% gains. And this Wednesday, July 31, he's planning to give away some of his favorite speculative opportunities, including one stock he believes could soar 10 times or more in the coming months.