The Coffee Can Portfolio Approach To Investing

Robert Kirby, a professional manager whose heyday was in the 1970s and 1980s, once wrote an article titled “The Coffee Can Portfolio” which focused on the importance of letting winners run as the most important yet chronically neglected component of finding investment success.

When Kirby presented the concept, he told the story about a lady whose money he managed. Specifically, after her husband died, she transferred the assets from her deceased husband to Kirby. 

When Kirby reviewed the husband’s portfolio, he noticed that he had tracked the same exact investments that were made in the wife’s account, except there was one exception: the husband never sold any of the stocks when Kirby did–he just let them all run and achieve whatever compounding it was that they generated. 

Upon comparing the results, Kirby had two observations: (1) the portfolio was dramatically skewed, with just four or five stocks making … Read the rest of this article!

The Big Oil Crash of the 1990s

It is critical for long-term investors not to be swayed by what other people think, what the rest of the world thinks, or anything like that. This is obviously easier said than done. I’d like to direct your attention to the cheap oil of the 1990s, and discuss three things: the headline risk that existed at the time, the investment returns that occurred during this time, and the changes in the price of oil’s fundamentals that occurred during this 1990-1998 time frame.

In September of 1990, the price of oil spiked to $60.57 per barrel (I’m giving figures that are adjusted for inflation using 2014 statistics). This was a significant uptick from the $35-$40 range that was the world’s oil price habit during the last five years of the 1980s. Saddam Hussein had accused the Emirate of Kuwait of using slant drilling techniques to steal Iraqi oil, and this price … Read the rest of this article!

Annuities and the Cost of Guaranteed Income for Life

Over the past few months, the largest annuity provider in the United States has been training its advisers to take advantage of the current global health crisis to sell their clients annuities. Apparently, various consumer market studies have indicated that retirees right now are particularly receptive to the promise of “guaranteed income for life.” One study found that 33% of scared retirees bought an annuity upon hearing the words guaranteed income. 

This is predatory as it exploits one’s fear of economic insecurity to make a financial decision that is to the detriment of your household. And given the large sums of money often involved in annuities, the costs of the poor decision are particularly high.

Going into this year, the typical annuity provides $0.78 in cumulative lifetime value for every $1 purchased, provides $0.05 in commissions to brokers/sellers, and lasts 7.82 years. In other words, if you buy an annuity … Read the rest of this article!