Before I write another quick post on this coffee can investing approach I thought I should link to the article that a lot of people reference on this topic.
It was from way back in 1984 and I think it makes excellent reading still today.
Now that I have done that I wanted to jot down a few more stocks that I plan to have in the coffee can for my company. Perhaps it is a good omen to do so, since SSG is looking ok since I discussed it in May, touch wood! My real point for doing this though is that writing notes down will hopefully help in the behaviour side of things not to touch the coffee can.
Whilst I won’t mention every holding in this bucket here on this blog, just mentioning a few might help with the behavioural aspects. As the above article link points out, this type of approach is probably more conducive to owning a large number of stocks, rather than a concentrated approach. In ten years plus time (I hope not to transact in these any sooner, or at all if possible), maybe some could be near worthless. A lot can change in a decade or two! Think of your own typical day in 1999 for example. Perhaps however you hit some tenbaggers or better with some holdings to make up for the shockers. I am hoping the size of my company slowly increases and I end up adding maybe at least a dozen more stocks over the next few years, aside from the 4 I will have mentioned to this point.
Three stocks I am about to mention are not necessarily new buys for me, as I have owned them before in some cases for quite a while in my other accounts. They may be in very different sectors, but I think they do have some common themes. I think they are managed reasonably well, and importantly in a way where shareholder return is the focus.
I don’t want to make this a huge blog post because I don’t want this site to become too time consuming for me. For that reason I won’t write too much in depth on these stocks here, as I have said it is just a little exercise not to get trigger happy on the sell button one day.
I also don’t want to make a stock tipping site or anything like that, they may not necessarily be stocks that I am buying currently with new money, but they are ones I think I will hold for a long time. So the usual disclaimer about do your own research etc applies.
As part of learning about some of the history of these companies, off the top of my head I know some other investors may have written about them publicly. For example EGP Capital with UOS, and also the Intelligent Investor with that stock. In the case of RUL, Rask Media and Forager Funds. JYC was covered a little by DMX Asset Management.
I want to stress I don’t have any affiliations with the above investors here. I just point this out as it saves me a bit of time writing a heap of info about these companies in the case someone might want to do more of their own research. Googling the above investors might be an ok place to start your OWN research.
Here I just plan to add a few extra snippets why I think they can fit the coffee can criteria and I can not have to trade them for a decade. You will notice they are not highly liquid so many fund managers can’t realistically invest in these, a bit like with SSG that was quite small. I would rather limit my search to these type of situations otherwise I probably have no “edge” and might be better off sticking to index ETFs.
UOS:ASX – The management here have delivered excellent shareholder returns over decades. This spans the 1997 Asian crisis, 2000 tech bust, 2008 GFC. They have a strong balance sheet going into 2020 when COVID-19 hit. Upside potential might occur if they expand well into Vietnam. Promoting the stock is off no interest to them. I have met the management in KL a couple of times a few years ago and they seem to me to have shareholder’s interests as a priority.
RUL:ASX – RPM global I like the way CEO Richard Matthews got his stake in the company when the miming sector was at a cyclical low point. Rather than overseeing a destruction in value and still gifting themselves bonus shares like a lot of CEOs do on the ASX! When you read through the investor presentations since 2012 you can see a promised vision slowly evolve. Whilst the stock had got a bit more coverage than I like from investors like I mentioned earlier, I still think it is under the radar in many respects. This is due to size, and only partially recognizing revenues as they move to a subscription model. This means currently revenues are understated more than normal, but more baked in to rev up in the next few years.
Capex was significant too in the past and now they are moving into the sweet spot where this might slow down, yet as I said they should experience very impressive revenue growth and cashflows.
JYC:ASX – Joyce Corporation have managed their kitchen and bedding businesses in a very impressive manner in recent years in a sector that many have written off. As Shaver Shop is showing not every retailer is dying because of the online threat. If you want a new kitchen or bed you probably want to have a look somewhere other than the internet before you actually commit! JYC are doing something right here in terms of customer referrals and service. They still have quite a bit of room for new store roll outs.
JYC historically has been somewhat of a micro-cap old fashioned conglomerate, selling and buying businesses over a long history. Dan Smetana owns 40% of JYC and I think he is more about shareholder value rather than extracting money himself in directors fees etc. Unfortunately JYC made a mistake in acquiring Lloyds online auctions business in 2016 which they sold very recently. At least though it demonstrates they are willing to divest an asset rather than empire building for the sake of it. At least it might highlight a simple high return business now. One with a strong balance sheet. When they divested Lloyds on June 17th the stock was only about $1 then, might have been a P/E of only 7 times. Pretty undemanding for some businesses that may continue to flourish as weaker competitors go through these challenging times.
In all the 3 examples above I think at various times in their histories they have showed signs they can allocate capital prudently through cycles. They are willing to divest an asset or cut costs at times if needed or buy or invest capital in gloomy times when asset prices are depressed. Handy to have in a coffee can portfolio strategy.
Steve Green Research 