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The Revised Coffee-Can Portfolio: What’s in Store for 2014?

The portfolio performed decently in 2013, but it didn't excel

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A year has past since I last revisited the alternate version of the Coffee-Can portfolio I created in April 2012. It’s based on Bob Kirby’s original concept of putting a bunch of stock certificates in a coffee can and leaving them there. The ultimate in passive active investment management, it was revised by Morningstar in 2005.

arrowsMy version simply replaced three of the stocks Morningstar had chosen with three of my own. I’lll take a look back on its performance in 2013. In addition, I’ll pick three stocks I think will outperform in 2014.

Coffee-Can Portfolio: The Good 

The portfolio achieved a total return of 23.2%, with nine of 10 stocks delivering positive returns. Eight of the nine had double-digit gains, with the best performance coming from John Malone’s Liberty Interactive (LINTA) which was up 49.1% in 2013. LINTA focuses on e-commerce businesses such as QVC, Evite and many others.

My three replacement stocks, Franklin Resources (BEN), U.S. Bancorp (USB) and Liberty Interactive, whose share prices barely budged in 2012, averaged a gain of 39.2% in 2013. With the exception of Strayer Education (STRA), all these stocks have achieved a total return of at least 20% since the portfolio’s inception back in April 2012.

Coffee-Can Portfolio: The Bad

Probably the most disappointing result in 2013 was underperforming SPY by nine percentage points. I predicted at the beginning of last year that the portfolio would beat the ETF by 300 basis points. That clearly didn’t happen.

This past year seemed as if you could throw a dart at a board and you’d come out smelling like roses. Not so for the coffee-can portfolio. Six stocks couldn’t keep pace with the large-cap ETF including Diageo (DEO) whose 2013 return was 20 percentage points less than it achieved in 2012. Of course, the passive nature of this portfolio lends itself to the type of year it’s just had — it wasn’t constructed for short-term results.

Also disappointing is the fact that my three replacements underperformed the old ones that I removed: Federated Investors (FII), Fifth Third Bank (FITB) and IAC/InterActive (IACI) by almost seven percentage points. Lastly, Strayer Education has become a chronic problem that’s weighing on the portfolio’s overall performance.

Other for-profit educators like ITT Educational Services (ESI) and Capella Education (CPLA) did extremely well in 2013. Hopefully, it’s Strayer’s turn to rebound in 2014 because it was down 39% this past year and 59% since April 2012. 

Revised Coffee-Can Portfolio: 2013 Performance
Iron Mountain IRM 1.3%
Diageo DEO 16.3%
Novartis NVS 31.8%
CarMax KMX 25.3%
Berkshire Hathaway BRK.B 32.2%
Colgate-Palmolive CL 27.6%
U.S. Bancorp USB 29.6%
Liberty Interactive LINTA 49.1%
Franklin Resources BEN 38.9%
Strayer Education STRA -38.6%
Average Total Return 23.2%

Here are my three picks from the coffee-can portfolio that I think will do well in 2014:

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