How many books can you churn out of a simple two-factor quantitative filter, of 34-year vintage, called the ‘Coffee Can Portfolio’ (CCP)? Two years ago, Saurabh Mukerjea, CEO of institutional equities, Ambit Capital, came out with Unusual Billionaires, a 445-page tome that was essentially the story of seven of the eight companies that met the CCP criteria. Mukherjea is back with another book called Coffee Can Investing. But first, what is CCP?
In a paper in 1984, Robert Kirby of Kirby Capital had narrated an incident involving his client’s husband who had purchased stocks recommended by Kirby at $5,000 each. He did not ever sell anything. Metaphorically, he stuffed the certificates in a
coffee can. (In the 1900s, much before bank branches spread, Americans used to save their valuables and cash in a
coffee can.) A decade later, these turned out to have created enormous wealth. One the holdings was Xerox which ballooned to over $800,000 in value. In describing this outcome of ‘buy and forget’, Kirby coined the term Coffee Can Portfolio. Separately, a study by Fidelity showed that there were two categories of people who made the maximum money—those who were dead and those who had forgotten about their investments.
Can one create such buy & forget portfolio now? The book suggests select companies with, at least, Rs100 crore of market-cap. Shortlist those which have been around for 10 years. Select companies with at least 10% revenue growth and 15% return on capital employed (RoCE) for each one of the past 10 years. For financial firms, use return on equity (RoE) of 15% and loan growth of 15% every year. Imagine, these few simple steps have yielded at least two books already.
In Unusual Billionaires, eight companies managed to fulfil both, the growth and return criteria, in each of the past 10 years while the list has gone up to 12 in Coffee Can Investing. But will it make you wealthy? The authors promise so. “The CCPs are full of companies that are the Rahul Dravids of the business world—rare, determined and constantly seeking to improve the edge or the advantage they enjoy vis-à-vis their competitors.”
Really? The authors, very helpfully, have provided the CCP of each year starting from 2000 in the appendix. What is startling is the frequent appearance of, literally, the dregs of the market every few years in this august list of Rahul Dravids—companies that were accused of horrible mis-governance, including cheating and siphoning money, leaving banks and shareholders in the lurch.
The CCP of 2001, included Roofit Industries, a de-listed company, part of a scam-ridden group that included two other companies (also delisted)— Soundcraft Industries and Kolar Biotech! Its promoter had a non-bailable warrant issued against him and had reportedly fled the country (
https://tinyurl.com/ybopcxfx). The 2004 list included Alok Industries an outstanding value destroyer which is under insolvency now. The 2007 list had Aftek, another dubious operation, which got de-listed. The 2010 list had Punjab National Bank (PNB) and Tulip Telecom (also de-listed).
The 2011 list, apart from PNB and Tulip, had Unity Infrastructure (down from over Rs100 to Rs5 now), Zylog Systems, (down from Rs320 to Rs3 and listed only in name) and Amar Remedies which crashed from over Rs160 to Rs6 and in one and half years and got de-listed. The 2012 list had Tecpro, down from over Rs400 to Rs4. It is one thing for a model to pick up occasional laggards. It is quite another matter for the model to serve you a refined list of 8-12 stocks among thousands, some of which get de-listed or lose 99% of value, or are run by scamster promoters.
The first book is about seven stories of the eight CCP stocks and was strangely called Unusual Billionaires. The second book is called Coffee Can Investing but CCP is only a part of it. The book is an appeal to retail savers to plan their finances by avoiding insurance, gold, real estate and fixed-income products for wealth creation. CCP is advocated to be a small part of the financial plan which should be made up of Nifty ETF (exchange traded fund) and mid-cap mutual fund schemes. I am not sure whether it will be easy for savers to digest, and actually apply the strategy, when they see some of their ‘Rahul Dravid stocks’ lose 50%-60% value in a year when the market is actually up. Of course, if they hire Ambit’s financial planners, as seems to have been frequently hinted, it may help.
I am not sure if her opinion on where to invest matters.
This is India and every promoter will have some skeletons in their closets.
I recently read this book and Diamonds in the Dust by Saurabh.
Being an active investor, I can vouch for its content. Diamonds in the dust is essential reading if you invest in stocks directly in my opinion.
If for the simple reason that the good perfomers of a decade ago may be poor performers and may not even be around today.
Just because Dhirubhai did a great job in his choice of business there is no guarantee that the heirs will have a comparable vision or enthusiasm in the way they pursue their own sectors for investment.
The ones that have been held for 10 +yrs