Coffee Can Investing Summary
I’ve just completed “Coffee Can Investing” by Saurabh Mukherjea, Rakshit Ranjan and Pranab Uniyal. Here I’ve summarized key points which I learn.
The best time to plant tree was twenty years ago. The second best time is Now. ~ancient Chinese saying
Intro:
RBI committee opined that 88% of an Indian investors’ wealth is in gold and real estate, a dominance not seen in any other large economy. These asset class issues of liquidity, emotional connect, unfavourable capital gain taxation. The culture of stock market investments in India is only two decades old. Unlike the stock markets in developed countries, the Indian stock markets has very few great companies that sustain leadership over long run.
Mistakes we all make:
Equity market has high volatility only way to make consistently return is to stay invested. The longer you postpone getting your objectives backed into a financial plan, the harder it will become for you to meet these. Buying and Selling in fun, but compound will help only if stay invested in long run, Patience is the key. Diversification of portfolio is very important, different asset classes can help in sustained long-term wealth creation. If anyone invest through mutual fund it’s important that fund have reasonable expense ratios. Most of people ignore inflations and taxes, you have to considere after tax return, not absolute return at all.
Coffee Can Investing:
Successful equity investing largely around answering two simple question:
Which stocks should I buy? and For how long should I hold the stocks I bought? These questions are simple but not easy to answer.
Punters (who incorrectly think and call themselves investors) have less information compared to professional fund managers. Hence, they end up losing more money than they make in the long run.
Warren Buffett explains that the kind of companies he likes to invest in are companies that have A) a business we understand; B) favourable long-term economics; C) able and trustworthy management; D) a sensible price tag.
Finally, The Coffee Can Portfolio comes to India…
~ Minimum market cap. INR 100 Cr.
~ Sales growth 10 per cent over the preceding decade by each year
~ ROCE (Return on Capital Employed) at least 15 per cent
Invested in CCP (Coffee Can Portfolio) over decade with no churn, this portfolio generates returns that are substantially higher than the benchmark. Investing and holding for long term is the most effective way of killing the ‘noise’. CCP tend to have focus on core franchise, competitive moats and sensible capital allocation. Focus on structural rather than cyclical business, avoid companies that borrow lots of money to grow.
Mutual Fund & Real Estate:
Fund expense are often ignored but are deceptively more important. In Large cap fund the alpha is now negligible so that it’s make much sense to invest in passive funds or ETFs.
Real estate run into super cycles of more than ten years, so investors usually satisfied with absolute returns. REITs are extremely popular in developed markets. Their evolution is an indicator of the potential and future path of real estate investment in India. Real estate has given far lower returns compared to equity over long periods of time.
Generating superior long-term investment is gtreater with small-caps, the need is professional help greater. Because of small caps are riskier than the larger one due to both fundamental as well as non fundamental reasons.
Investors are ‘loss aversion’ as: “We all regret losses two to two-and-a-half times more than similar-sized gains”. In the long run like decade or two deccade patience premium will help to compound your money faster than buy and sell.
Create a financial plan which helps to achive life goals. Understand the power of expenses, power of high quality investing and patience. We all have goals, Goals can be bucketed into three categories:
- Security: extremely important to us and provide protection from anxity
- Stability: ensure that we maintain a desired standard of living
- Ambitions: achive upward wealth mobility and give us a certain status in our social circle.
It is important to link our investment style with our financial objectives; otherwise will end up either taking unnecessary risks or undershooting financial goals.
“Some people want it to happen, some wish it would happen, others make it happen”. ~ Michael Jordan
Invest in Yourself !
