BOOK SUMMARY: Coffee Can Investing: The Low Risk Road to Stupendous Wealth
Author: Saurabh Mukherjea, Rakshit Ranjan, Pranab Uniyal
Coffee can investing is written by Saurabh Mukherjea, Rakshit Ranjan, Pranab Uniyal. Most of the people fail to plan their finances as per their objective. Through this book we learn to match our investment with our financial goals while keeping the risk at minimum level. It is not necessary to follow the old age technique of investing like investing in fixed deposit, real estate and gold in this modern era. These assets sometimes gave very less return in longer period of time than investing in equity. Sometime these assets failed to beat inflation, while investing in equity is the best option for longer time. But equity investors need to pay attention on minimizing brokerage and intermediary’s fees low. They also need to be patient and systematic.
For most of the people investing in equity is very risky and complicated affair. They are surrounded by so many advisors and get irrelevant investment knowledge. There is a misconception “to get higher return from the stock market one has to take higher risk” which divert investors mind in punting. This misconception and advises make money for intermediaries not to investor. In this book it is suggested to invest money consistently in high quality stocks to generate higher returns while sitting for long time. Coffee can portfolio made a single investing pattern selecting companies which below data like…
Companies having more than 100 crore market capitalization.
Increase in growth sale each year by at least 10 percent.
Return of capital employed (pre-tax) of at least 15 percent each year.
Through this detailed back testing of coffee can investing based on data back to 1991, shows that if portfolio made by these filters then the portfolio can beat benchmark across all time periods.
There are so many people who do not pay much attention to fund expenses. Investors compounding return reduces over the period. The alpha i.e. outperformance in large cap equity mutual fund is now very low or negligible. For this it is suggested to invest in passive funds or ETFs. In US, active funds have started seeing massive outflows, which are becoming inflows for passive funds.
In India and developed markets, it is seen that real estate has given very low returns than equity over long periods of time. Though, it is suggested to diversify our investment through real estate and equity.
In the stock market it has been seen from past two decades that small cap companies have outperformed performed large cap companies. Smaller companies have the potential to grow their portfolio faster than large companies.
The investors who do not have patience even for one year, they are likely to lose money in equity market. The Sensex’s return over the past twenty six years has been seen as investment holding period increases from one year to ten years then the investor’s position on return and risk moves from high- risk low- return to low- risk high- rewards.
Combining quality premium with patience and make portfolio through this book produces very good returns with very low volatility but this investment should be kept for longer duration. Coffee can investing beats and Sensex by a wide margin when it comes to producing good returns and the volatility of Coffee can investing’s is also lower than Sensex. For the investors who can combine patience with high quality portfolio construction pulls off the Holy Grail of investing, outstanding returns with low level of volatility.
We should create our financial plan which can deliver our life goals. If it is not done then we are shooting in the darkness. This plan will help us quantify and rationalise our goals. It will also help us realise our return expectation from our investment portfolio so that we can construct our portfolio with the best risk reward.
Very nice book...
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