“You can make more money being passively active than actively passive,” was an investment philosophy of The Capital Group’s veteran investment manager Robert G. Kirby, and is now the inspiration of a book authored by three money managers at Ambit Capital, titled ‘Coffee Can Investing: The low-risk road to creating stupendous wealth’.
In a chat with Moneycontrol, authors Saurabh Mukherjea, CEO of Ambit Capital, Rakshit Ranjan, Fund Manager at Ambit AMC and Pranab Uniyal, Products and Advisory Head at Ambit spoke about how individuals could make a decent retirement nest egg through equity investing, without having to resort to excessive risks.
The concept of Coffee Can Investing dates back to the 19th century American old west when banking was non- existent and people would stick their savings into a coffee jar. Kirby popularised the concept of investing in fundamentally sound diversified stocks and holding them for a decade to cut risk and volatility and ensure decent returns to build a healthy retirement fund.
“This book is also more about how to save systematically in the last 10 years of your career and retire with a substantial corpus,” Mukherjea said referring to Kirby’s philosophy.
The book covers multiple Coffee Can portfolios that the trio has built for their clients. The basic principle for identifying stocks is companies with revenue growth of at least 10 percent and Return on Capital Employed (RoCE) of 15 percent every year for the preceding 10 years. After applying these filters, Mukherjea noted, only a handful of stocks or about 15-20 companies will look worthy of investments at any given point in time.
The remarkable thing is at whatever point in time you build these portfolios they are capable of giving roughly 24-25 percent compounded returns, with zero churn and volatility of portfolio at less than half that of the market, he said.
Uniyal shed light on an interesting fact. Indian households currently have nearly 95 percent of their wealth parked in physical assets such as real estate, consumer goods and gold. Only 5 percent is in non-physical assets. The worth of this 5 percent of assets can only move in one direction, and that is northward, he said.
He went on to explain how even in its greatest century, the world’s greatest economy -- the US – could not give compounded return on real estate at over 0.1 percent. “People put far too much money into real estate,” he said.
According to Ranjan, a very important factor for long term investment is finding promoters who have stayed judicious during periods of high cash, as it’s easy to get carried away and venture into areas that do not match their expertise.
The trio have wrapped up the book with an interesting phrase, “The best time to plant a tree was 20 years ago. The next best time is now,” that perfectly applies to retirement planning as well.
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