At the Internet Association’s gala dinner last year, Amazon CEO Jeff Bezos famously said that his quarterly results had been ‘fully baked’ three years ago. Clearly, at any given point in time, he’s considering what his company’s earnings would look like three years down the line.
Bezos’s Amazon is just the kind of company that investors should be looking at because not only is it important to report good earnings growth, it’s even more critical to deliver it consistently. Take HDFC Bank, which enjoys such a huge premium compared to its peers in the Indian banking segment, is known for its consistentcy.
The trick is to find a company that uses little capital to generate profits consistently year after year. Few people in India invest in equities, and even those who do, don’t necessarily get it right. Investing to create serious wealth needs a certain mindset, which many of us don’t have even if we believe we’re long-term investors. It is for this reason that Coffee Can Investing: The Low Risk Road to Stupendous Wealth, by Saurabh Mukherjea, Rakshit Ranjan and Pranab Uniyal, is a must-read for all – especially those who believe they have gotten it right.
In the initial chapters, the trio quotes real conversations that typically happen at social gatherings, on stocks and what to buy. It is perhaps the worst way to deal with equities, but the beauty is that even the smartest of folks do it. One economist I know sells his entire portfolio every two-three years when he believes markets will start falling. This book is for all such smart people who believe ‘long-term’ ranges between one and five years.
The book is an eye-opener because the authors not only spend time on how people can “invest in equities without taking untoward risks and generate serious wealth,” they also talk about typical mistakes people make and the price they end up paying. Interestingly, while the simple practices the authors discuss in the book do sound intuitive, very few follow it. Serious wealth creation takes much longer than five years.
The authors write: “When it comes to investing in stock markets, greatness is defined as the ability of a company to grow whilst sustaining its moats over long periods of time. This then enables such great companies to sustain superior financial performance over several decades.” But selecting such a company in India is very tough because of the opaqueness in financial reporting.
While many Indians believe that they can get rich quickly by punting in the markets, this book shows that the price of such misadventures can be very high. The behaviour of the average Indian saver is best demonstrated through the examples of two individuals that the authors have highlighted. Their financial behaviour could have led them to disastrous consequences and the authors make their point well. In both cases, individuals invested in high-risk instruments like hundis and debt paper of real estate developers, other than physical assets like real estate and gold.
Even though the book talks about serious issues like portfolio construction and choosing the right equity funds, it is very easy to read and absorb. While the authors spend adequate time on portfolio and stock selection, they also cover expenses in detail and how they end up impair ing returns over long periods.
There are plenty of takeaways for both HNIs and retail investors. The authors predict that tracker funds in India will be huge because actively managed large-cap funds will find it hard to beat the market’s returns. They have devoted an entire chapter to expenses and their impact on the value of the portfolio. Investing directly is a route that high net-worth individuals are already taking. The book also talks about the concept of advisory versus distribution.For those who worship moolah, this book could be a Bible.