#69 - Book Summary: Coffee Can Investing Formula

Timestamps

00:00 – Introduction

3:55 – Coffee Can Investing

8:30 – Philosophy

12:55 – Expenses

16:00 – Coffe Can Formula

20:30 – Sales Growth

22:00 – Return on Capital Employed

25:45 – Summary

27:00 – Putting it into Practice

29:00 – Coffe Can Companies

Notes:

Kirby, in a note written in 1984,5 narrated an incident involving his client’s husband. The gentleman had purchased stocks recommended by Kirby in denominations of US$5000 each but, unlike Kirby, did not sell anything from the portfolio. This process (of buying when Kirby bought but not selling thereafter) led to enormous wealth creation for the client over a period of about ten years. The wealth creation was mainly on account of one position transforming to a jumbo holding worth over US$8,00,000 which came from ‘a zillion shares of Xerox’. Impressed by this approach of ‘buy and forget’, Kirby coined the term ‘Coffee Can Portfolio’, a term in which the ‘coffee can’ harks back to the Wild West, when Americans, before the widespread advent of banks, saved their valuables in a coffee can and kept it under a mattress.

The Coffee Can Portfolio: Robust returns with a low degree of uncertainty

Saurabh Mukherjee: Saurabh Mukherjea is the Founder and Chief Investment Officer of Marcellus Investment Managers. Current portfolio INR 5700 crores in Feb 2021.

5 Key Take-Aways:

Philosophy:

There is an overwhelming dominance of physical investments like gold and real estate in most Indian households’ portfolios. 88 percent of an Indian investor’s wealth is in gold and real estate, a dominance not seen in any other large economy of the world. Unlike the stock markets in some developed countries, the Indian stock market has very few great companies that sustain leadership over long periods of time. Coffee Can Portfolio using a simple construct: we use straightforward investment filters to identify ten to twenty-five high-quality stocks and then leave the portfolio untouched for a decade.

Expenses:

Transaction fees: Also called brokerage, it is the fee you end up paying every time you enter a transaction.
- Annual fees: This is more typical of funds (like mutual funds and PMS) wherein the fund manager charges an annual fee which can actually be paid on a monthly or quarterly basis as well.
Hidden fees: In insurance products and structured products, it is not easy for investors to understand exactly what fees are being charged. In structured products,2 for example, the investor could be given a formula for the return on his principal but that is really the net return in his hands.

Coffe Can Formula

Sales Growth in double digits

Return on Capital Employed

Resources:

GDP and other macro indicators: https://coldbrew.money/28-macro-indicators/

https://www.reading.guru/coffee-can-investing-by-saurabh-mukherjea/

https://www.moneylife.in/article/the-buy-and-forget-of-coffee-can-portfolio-forget-it/53221.html