Hello investors, my name is Sagar and in this video we are going to talk about one book
this book tells you how to make a simple portfolio without doing much research
The name of the book is Coffee Can Investing and it's written by Saurabh Mukherjea , Rakshit Ranjhan and Pranab Uniyal
Saurabh Mukherjea was the CEO in Ambit Capital for several years and he shares his investing philosophy in this book
He is also the founder of Marcellus Investment managers. Let's start with the objective of this book
This book will help you achieve financial independence with the help of equities
The name " coffee can " refers to the era when Americans saved their valuables in a coffee can and kept it under a mattress
The book will help you construct your own portfolio of equities with three simple steps
Firstly, the market cap of selected companies should be more than 100 crores.
Companies smaller than 100 crores will probably will not have a clear past record and their credibility is not clear
Secondly, we want revenue growth of 10 % each year in the past 10 years
Please keep in mind, it's 10 % ever year in the past.
The Indian economy is growing around 6 - 7 % annually hence, a good company should be able to grow 10 % easily
Indirectly, this also means that the company has some competitive advantage that allows them to keep growing
Thirdly, we want ROCE (return on capital employed) of more than 15 % .
Let me explain what ROCE is first.
Any money that is put inside the company
which can be debt for example
the profit we can generate from the capital is ROCE
You don't want ROCE less than 15 %. Indirectly it tells you that the management is capable of allocating the capital correctly
If a company keeps increasing their revenue every year, they will also increase their free cash flows
and we would like them to use that capital wisely so they can keep growing continuously
They also provide two metrics for financial companies.
Firstly, you want to have loan growth of 10% as financial companies earn money by giving loans
This also indicates that the company has something good and that's why they can keep growing at that rate
Secondly, we have ROE (Return on equity )
Let me explain what does it mean
In any balance sheet, you have assets and liabilities
If you subtract the liabilities from the assets
you will have equity
The amount of profit the company can generate on that equity is known as ROE
In this case, we are looking for 15 % of ROE
It's important to know that you will have to track their past 10 year performance
As you already know, there are many cyclical companies and they keep fluctuating
If a company keeps growing at more than 10 % for the last 10 years , then it doesn't have a cyclical pattern
You also need to remember that you will be investing for the next 10 years to see the best results
Of course, not each stock will be a multibagger but you will have 3 or 4 stocks which perform very well
5 or 6 stocks will give you market returns
but then you will have some stocks, which will deliver negative returns
but after 10 years, the portfolio will still outperform because of the 3 or 4 multibaggers
Let's talk about their advantages. Firstly, there isn't any expense ratio as there is no mutual fund involved
Secondly, as you will buy the stocks just once, there won't be more transaction costs
Thirdly, you won't have to care about their valuations.
In my analysis videos. I always talk about valuations because I think it's very important
According to this book, you don't need to check their valuations. Because you will be following those 3 metrics
and invest in the selected stocks . What hey have observed is that
the market is India is very special. In other markets, when you buy undervalued stocks, you can achieve better results
but in the case of India, it's bit different. If the company has great management and business
and has consistent earnings together with future earning visibility
the valuations are not so important. This applies only to Indian companies.
I would like to highlight the fact that this book has been written to help you financially.
Your portfolio has to be planned accordingly. They are not suggesting you to invest all your capital in small caps
They do mention the importance of diversification and a balance mix between large, medium and small caps
As you already know, small caps will fall more than the broader market in a market correction.
That's why they mention medium and large caps as well. Large caps will provide some stability to your portfolio
Maybe you can invest more in small caps if you want to achieve greater returns
Lastly, a small part of your portfolio should be of debt
you can buy bonds of certain companies
If you would like to see more videos on other books
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