Idea of coffee can investing continues to remain equally powerful and technological changes have always been there. In my personal view, initial portfolio selection is extremely important in this approach.
Stock needs to be extraordinary on QGL parameters
Q - Quality of business, Quality of management (both on execution on integrity)
G - Growth potential of business, earnings and cash flow
L - Longevity of quality and growth
Its true that businesses witness S-curves, where growth is rapid in initial phase, followed by saturation. For coffee can stocks, preferred attribute is ability of create new S-curve, before older one saturates, by entering into a new related business/in new geography or through innovations. Alternatively, the business should be in early part of S-curve and saturation phase should be long away. IMHO, lots of industries are in early/mid phase of s-curve in India with big runway ahead. Also, many Indian companies have demonstrated ability to jump s-curves successfully.
If one has exposure in quality s-curve jumpers and businesses in initial phase of s-curve, long-term hold strategy has high probability of wealth creation. At the same time, few stocks will disappoint, despite utmost filtering. Portfolio diversification across sectors & stocks is required to safeguard against it.
WRT Xerox example, it is true that the company was disrupted after creating huge wealth. We do not know other constituents of the portfolio and weather any of them were able to compensate for the loss happening from this stock. In my personal view, if disruption or saturation is evident and it is also evident that the company is not able to create another S-curve, one should exit.
For example, we had a leading lubricant company in our family portfolio for more than 3 decades and the stock created decent wealth. While my father sold small portions many times for the personal requirements, decent quantity remined in the portfolio for a long time. Finally, when it was evident that the growth has saturated and the company has not been able to develop new business growth drivers, we made complete exit gradually in the last few years.
While I had churning of about 10-20% every year in my personal portfolio till last year as I was testing the stocks rigorously on QGL attributes and also improving on position sizing. Despite this, many of personal portfolio stocks have holding period of almost 8-10 years (started serious investing in 2009), with improved allocation in subsequent years. Some churn was also due to my inability to control myself. However, the churn phase is over and also self control has improved. I intend to hold the portfolio stocks for long term with target churn rate of less than 10% per annum. This is modified version of coffee can approach, lets see how it works.