What Is Coffee Can Investing, and How Can You Create Your Own Coffee Can Portfolio?

Hello there, flocks! Thank you for checking out readinghabit.net. I hope things are going well for you. Today we'll talk about one of my favourite investing books. Coffee Can Investing was written by Saurabh Mukherjea, Rakshit Ranjan, and Pranab Uniyal. Let's start with the author's description, as is usual.



Author description: Saurabh Mukherjea is the founder and chief investment officer of Marcellus Investment Managers. He is the author of several books, including Gurus of Chaos, The Unusual Billionaires, The Victory Project, and Diamond in the Dust, which I am currently reading. Rakshit Ranjan is the fund manager of Consistent Compounders PMS in Marcellous and a Chartered Financial Analyst. Pranab Uniyal was a former director of Ambit Wealth Advisor Private Limited




What is Coffee Can Investing?


Coffee Can Investing is based on a concept known as the Coffee Can Portfolio. Robert Kirby discovered this. Robert Kirby was the Capital Guardian Trust's chief investment manager, where he advised and managed high-net-worth clients' portfolios. Over twenty years later, he wrote a wonderful statement that introduced the world to the concept of the "Coffee Can Portfolio."


Robert Kirby wrote the one incident involving his client husband in his note in 1984. He spent USD 5,000 on a stock recommended by Kirby, but he did not sell anything from the portfolio. This process of not selling the shares and holding them for approximately ten years resulted in enormous wealth creation. Kirby dubbed this strategy of buying and forgetting about stocks the "Coffee Can Portfolio." A "Coffee Can Portfolio" consists of buying a stock and holding it for an extended period of time; in other words, buy and forget. Allow the compounding to take its course.


" An investment in knowledge pays the best interest"-Benjamin Franklin


How Can You Create Your Own Coffee Can Portfolio?


A successful equity investor always answers two simple questions 1) Which stock should I buy? & 2) For how long I should hold this stock I bought?

Warren Buffett's letter to shareholders of 1988 stated, 'When we own portions of an outstanding business with outstanding managements, our favourite holding period is forever '

According to the book the authors begin with 7,462 listed firms in India(7462 current listed companies), then filter it down to companies having a market value of 300 crores, as the data on companies becomes smaller. Then they seek firms that have grown revenues by at least 10% per year over the last decade while also achieving a ROCE (Return on capital employed) pre-tax of at least 15%. ROE of 15 per cent (For Banking & Non-Banking Financial Company).


I recently saw a webinar by Saurabh Mukherjee in which he stated that good firms in India always have a ROCE of around 25% or higher because they generate significant free cash flow. I'll include a YouTube link below.



Why does the coffee can portfolio perform so well?


According to the author's "The coffee can investing philosophy is based on using the twin filters to identify great companies with the DNA to maintain their competitive advantages for ten to twenty years (or longer). This is because "greatness," which the coffee portfolio seeks, is neither temporary nor a short-term phenomenon. Greatness does not change from one quarter to the next."


" Risk comes from not knowing what you are doing"- Warren Buffett


Great businesses can thrive in difficult times. Their expansion is not dependent on domestic or global growth; they thrive during economic downturns as well. Great companies are not disrupted by changes in customer preferences, ascents of competitors, or operational tenets of their business. Their management teams have strategies that produce better results than their competitors. These great companies effectively separate themselves from the competition using these strategies

The Four Advantages to investing in a good company in coffee can investing:

1) Hight probability of profits over a long period of time

2) It reduces the Transaction cost plus you can avoid short terms capital tax gain also

3)Taking care of the negatives during that time period.

4) The power of compounding works in long run.


Note: One thing I learned from this is that you should look for a company that has been in business for a long time and has high barriers to entry. If you really want to learn about a company, read the annual report, and quarterly results, and listen in on conference calls.


Performance of Coffee Can Investing



(Source from Coffee Can Investing Book)


"Some People want it to happen, some wish it would happen, others make it happen."-Michale Jordan


Specific themes of Coffee can Investing:

The Coffee Can Portfolio is focused on the following topics in order to achieve longevity and consistency of performance in terms of ROCE and Revenue growth:

  • More B2C (Business to consumer) than B2B (Business to Business) sector

  • Avoid companies that borrow lots of money to grow.

  • Prefer companies with intangible strategic assets.

My thoughts on this book: If you want to invest for the long term, I believe this is one book that will teach you many lessons about why we should invest in the stock market, what a coffee can portfolio is, and how to allocate capital. This is my favourite book for 2022. This book took me over a month to read because it teaches you a valuable lesson about equity. If you want to learn more about coffee can investing, you should subscribe to Marcellus Investment's YouTube channel,or Marcellus Investment Managers. (https://marcellus.in/)



 

This month, I'm reading Diamond In The Dust by Saurabh Mukherjea, Rakshit Ranjan, and Salil Desai, three of my favourite authors. I'd call it the second part of Coffee Can Investing because we learn about Coffee Can Profoile. This book teaches how to acquire CCP stock and conduct forensic analysis.

3 views0 comments