Coffee Can Investing:: The Low Risk Road to Stupendous Wealth PDF
Preview Coffee Can Investing:: The Low Risk Road to Stupendous Wealth
SAURABH MUKHERJEA RAKSHIT RANJAN PRANAB UNIYAL COFFEE CAN INVESTING The Low-risk Road to Stupendous Wealth PENGUIN BOOKS Contents Foreword List of Abbreviations Introduction 1. Mr Talwar’s Uncertain Future 2. Coffee Can Investing 3. Expenses Matter 4. The Real Estate Trap 5. Small Is Beautiful 6. How Patience and Quality Intertwine 7. Pulling It All Together 8. Designing Your Own Financial Plan Appendix 1: Detailed Coffee Can Portfolios Appendix 2: How Punchy Can the P/E Multiple of a Great Company Be? Appendix 3: Should Investors Sell Coffee Can Stocks When Markets Are Richly Valued Appendix 4: How Coffee Can Portfolios Outperform during Market Stress Appendix 5: The Role of Starting Period Valuations in Determining Investment Returns Footnotes Foreword Introduction 1. Mr Talwar’s Uncertain Future 2. Coffee Can Investing 3. Expenses Matter 4. The Real Estate Trap 5. Small Is Beautiful 6. How Patience and Quality Intertwine 7. Pulling It All Together 8. Designing Your Own Financial Plan Appendix 2: How Punchy Can the P/E Multiple of a Great Company Be? Acknowledgements Acknowledgements Follow Penguin Copyright Advance Praise for Coffee Can Investing ‘This book offers objective, fact-based and sensible advice for saving and investing that will enable readers to formulate realistic lifetime aspirations and to accumulate wealth to achieve them. Most importantly, it will teach them [how] to avoid losing a small fortune in fees and commissions and to avoid losing a large fortune through market timing attempts, bad asset allocation and overtrading. A must-read for India’s emerging huge numbers of middle and upper-middle income-earners’—Avinash K. Dixit, John J.F. Sherrerd ’52 University professor of economics, emeritus, Princeton University ‘Sensible advice on portfolio construction and wealth management is hard to find in India. This book therefore fills a void in the Indian market. Anyone who wants to invest sensibly and retire happily should read this book’— Sanjay Bakshi, adjunct professor, Management Development Institute (Gurgaon) Praise for The Unusual Billionaires ‘Saurabh Mukherjea describes incisively how some great Indian companies have achieved corporate success and made a great deal of money for investors along the way’—John Kay, professor of economics, London School of Economics ‘Saurabh’s book highlights that the recipe for outstanding corporate results hinge on old-fashioned values’—Ashok Wadhwa, group CEO, Ambit Holdings ‘An insightful—and reassuring—exposition of how steady good sense can consistently beat the unsteady Sensex’—Rama Bijapurkar, author and management consultant ‘Mukherjea’s book is insightful and makes for easy reading’—Financial Express ‘Mukherjea is one of our most erudite young writers in the field of investment banking’—Mint ‘Books that are able to describe successful businesses through a common theme or analytical framework are rare in India. This one is an addition to that small collection’—Moneylife ‘The book does not just list the winning pack, but also traces the history of these companies’—The Hindu BusinessLine Foreword Whilst I have been a finance professional for thirty-five years, it is only in the past twenty years or so that I have made a conscious effort to save and invest in a structured manner. Initially, I relied on wealth managers to advise me about my investments, but soon I realized that most of them are focused on their wealth, not mine. Therefore, around fifteen years ago, I set up my family office, which is staffed by hand-picked chartered accountants and chartered financial analysts. However, such is the paucity of sensibly priced and structured investment products in the Indian market that even my family office has to be very selective to enable me to preserve and grow my wealth. Given this backdrop, I was more than intrigued when four years ago Ambit Capital’s research team published its first Coffee Can Portfolio. Whilst I wasn’t an initial convert to the idea of buying a bunch of high-quality stocks and then leaving it untouched for a decade, I soon began hearing from my friends that they were putting money into this construct. Initially, Ambit Capital offered this portfolio to private clients in an advisory arrangement, i.e. the corpus was invested by the clients in their own name but with Ambit’s wealth managers helping with the stock selection. Then, after Saurabh’s book, The Unusual Billionaires, became a runaway hit within months of its publication in August 2016, Ambit Capital started offering the Coffee Can Portfolio in a SEBI-regulated PMS construct. I was one of the first investors in this PMS scheme. Since then the Coffee Can Portfolio has given me impressive returns with low volatility and low transaction costs. I hope it does the same for you. If the Coffee Can Portfolio is an example of homegrown innovation in the Indian stock market, then Exchange Traded Funds (ETFs)1 are an example of an idea imported from the US which is finding rapid traction in India. As the Indian stock market matures, as it becomes better regulated, more institutionalized and more competitive, it is but natural that large-cap mutual fund managers will struggle to beat the market. Hence, for most investors, large-cap ETFs with low fees will become a cost-efficient way to participate in the growth of India’s vibrant economy. Although active management of large-cap stocks is no longer an assured way to generate market-beating returns in large-cap Indian stocks, in the small-cap space India has several talented fund managers who consistently deliver outstanding returns by investing in upcoming companies. These fund managers are able to find companies that are not only good (i.e. companies where the promoter allocates capital sensibly) but, just as importantly, are also clean (i.e. companies where the financial statements are a true and fair reflection of the underlying state of the business). Ambit Capital’s Good & Clean fund focuses on investing in such companies, and three years ago I invested in this fund. These three contrasting approaches to equity investing—ETFs for large- caps; a low-cost, conservative strategy like the Coffee Can Portfolio for large and mid-caps; and careful stock selection for small-midcaps—should form the bedrock of any growth-oriented Indian portfolio. To the extent that all of us need to set aside some money for a rainy day, I strongly believe it should be done by investing in government bonds and conservatively managed liquid funds. When it comes to my ‘rainy day’ corpus, life has taught me that I need to focus on liquidity and complete safety of funds. Saurabh Mukherjea, Rakshit Ranjan and Pranab Uniyal have worked in Ambit Capital for almost a decade now. I have seen them grow as finance professionals. It has been my privilege to see their wealth management philosophy evolve through intense brainstorming sessions at Ambit and then see them put their ideas to work in front of India’s smartest investors. This elegantly constructed book is their attempt to share their wealth management approach with you. It uses minimal jargon and is packed with case studies that almost everyone will identify with. I hope you enjoy reading this book and make even better returns from your portfolio.
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