Coffee Can Portfolio

This is Based the book written by Saurabh Mukherjea, Rakshit Ranjan, Pranab Uniyal – “Coffee Can Investing: The Low-Risk Road to Stupendous Wealth”. The implementation of the concept in today’s world is simply “buy and forget” – in other terms having a long horizon for the investment. Long term also ensures that we give these good companies complete economic cycles to show it’s performance – removing the impact of recession/ downturns/ temporary negative sentiments that result in a drop in share prices. How to invest in Coffee Can Portfolio? Creating the portfolio, simplified, is a 3 step process Find good companies (stocks) – that becomes your “portfolio” for that particular year Invest in them in equal amounts and hold them for 10 years – if there are 8 companies in the portfolio and you want to invest INR 4 Lacks, invest 50K in each of the stocks (4,00,000/8 = 50,000) Churn a few companies annually based on the “rule” (I will explain that later) STEP 1: Find good companies This clearly is the most important step of the whole process. For the current year, you should pick stocks that, for each of the last 10 years, have ROCE (Return on Capital Employed) > 15% Sales growth (over previous year) >10% For each company in the Coffee Can Portfolio 2020 portfolio (valid from Apr’ 20 to Mar’ 21), this should hold true for each of the last 10 years FY 09-10 to 19-20. If you want to play safer, you can put a floor on the market capitalization. For the portfolio that I have created, all companies have Market Cap of 10,000 Cr. This would weed out the micro/ small-cap companies where there might be a risk of irregular compliance/ audit/ annual reporting. STEP 2: Invest equal amounts in them You can use your existing broker (e.g. ICICI Direct/ Indiabulls) or can use Zerodha which is currently India’s largest stockbroker and has pioneered the concept of discount broking and price transparency. Between 1st April of the portfolio year and 31st March of the next year, you can invest in the portfolio multiple times. There are three strategies you can follow

by Ramesh