Why You Can’t Just be a Passive Investor

From Coffee Cans to Cutting-edge Investing for Today’s Market

Do you remember coffee cans?

Today, we are more likely to go to Starbucks or use single serve K-Cups, so it’s easy to forget that coffee cans were once fixtures in millions of American homes.

They looked something like this…

But coffee cans weren’t just for coffee. They once represented an enlightened way of thinking about how to make a lot of money in stocks.

Chris Mayer introduced InvestorPlace CEO Brian Hunt to the coffee can concept. It’s frequently associated with an investment manager named Robert Kirby.

Kirby wrote:

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 was simple.

1. Buy high-quality businesses with promising futures.
2. Do nothing but hold the portfolio for years.

You stuff your shares in a figurative coffee can, put the can in the cupboard, and don’t look at it for decades.

The coffee can idea from Kirby was inspired by a real-life experience he had during his time 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.

The result was remarkable.

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 one giant holding worth more than $800,000. That holding was born from a small investment in Haloid, which became a large amount of Xerox shares.

This inactive, long-term approach worked brilliantly back then – when coffee cans were common.

But that’s not true anymore …

Why investors need to be active

To be clear, holding stocks for long periods makes a lot of sense as a disciplined investor.

After all, too many investors jump in and out of stocks because of fear or greed, take profits too early, get too impatient, stress over meaningless day-to-day stock movements, and check price quotes all day.

Those mistakes were bad decades ago and they’re just as bad now.

At the same time, we’d be foolish not to acknowledge that the fundamentals of the market have evolved. In the past decade, half of the top 10 stocks in the S&P 500 have changed.

Here is a chart showing the top 10 stocks by weight in the S&P 500 in 2015 compared to today.

Half the list has been replaced.

General Electric, once a market leader, isn’t even in the top 50 today!

According to professional services firm EY, the average lifespan of a stock on the S&P 500 used to be 67 years.

That sounds like an ideal environment for coffee can investing.

Today the average lifespan of a stock on the S&P 500 is just 15 years and is projected to shorten further.

Trading Often, Trading Safely

Luke Lango understands this.

Luke is still an advocate for investing in cutting-edge companies early in their life cycle and holding for years. But he’s not blind to the increasing market volatility, or the shortened periods in which many elite stocks remain atop the leaderboard.

And it’s why he developed his new “Auspex” strategy – a system designed to replace uncertainty and volatility with certainty and stability.

Last week, Luke pulled back the curtain on the details during The Auspex Anomaly Event.

Here is how Luke describes the screening tool.

To me, Auspex is the ultimate stock-screening tool. My team and I designed it to find the “best stocks at the best time.”

Auspex combines fundamental, technical, and market sentiment factors to identify the next month’s top-performing stocks.

At the start of each month, Auspex scans more than 10,000 stocks for those with the highest levels of fundamental strength, technical market direction, and positive market sentiment… to find the stocks with the most upward momentum over the next month.

It typically identifies 5-20 stocks. Then, my team and I then dig in and determine which of those will form that month’s Auspex Portfolio.

Users just buy Auspex’s recommended selections at the beginning of the month, and that’s it.

You hold until the end of the month when Auspex either suggests you remain in the stock (based on a new scan of strength at that time) or rotate your money into a new stock that has passed all of Luke’s screens.

With this system, you keep your wealth aligned in the “best of the best” of fundamental, technical, and sentiment strength on a month-by-month basis.

Luke started doing this live with his Inner Circle subscribers five months ago, and we’re thrilled to report that the system has outperformed the market every single month.

Even in November when the S&P 500 rose 5.7%, Auspex crushed it, with his equal-weighted portfolio rising more than 8%.

Again, this was the fifth consecutive month of market-beating returns for Auspex.

To learn more and to subscribe before the next Auspex rotation on the first of the month, just click here to watch a replay of The Auspex Anomaly Event.

Putting your portfolio into a proverbial “coffee can” might still work, but with stocks and markets changing so quickly, a system designed to keep you in “the best of the best” throughout the year makes a lot of sense.

Enjoy your weekend,

Luis Hernandez

Editor in Chief, InvestorPlace