Portfolio Type: Concentrated portfolio of top 1% of companies
Inception Date: 6 March 2017
Number of Stocks: 11
Fund Manager Name: Manish Jain
Fund Manager Experience: Total Exp – 10 Years
Fund Manager Qualification: Manish is Chartered Financial Analyst and has Completed his MBA in Finance from SCMHRD, Pune.
Investment Objective: The Coffee Can Philosophy shows commitment to high-quality franchises that consistently sustain their competitive advantages over long periods of time despite being faced by challenges and disruptions at regular intervals.
Investment Strategy: The following aspects of Ambit’s Coffee Can Philosophy help it outperform the broader markets by at least 500-700 bps sustainably each year:
1) Lower drawdowns during the market crash on average, the percentage fall in a Coffee Can Portfolio is less than half of the broader market during a market-wide crash. This is because Coffee Can Portfolio companies valuations are supported by robust fundamentals/earnings.
2) Low churn in the portfolio. On average no more than 5-10% churn in a year compared to 40-50% churn for most mutual funds. As a result, the Coffee Can Portfolio incurs negligible brokerage costs, capital gains taxes, and expense ratios, and thereby benefits the most from the power of compounding.
3) No need to time entry/exit from this portfolio Given the evergreen nature of the constituent companies, an investor can generate healthy returns from the Coffee Can Philosophy regardless of bull/bear runs in the broader markets, regardless of whether the external economic environment is good or bad, and regardless of the number of years of since when the portfolio has been chosen by the investor.
Coffee Can Investing is an interesting investment strategy to make successful equity investments.
It’s a strategy that promises impressive wealth creation with ‘Less risk’.
“Coffee Can Investing Portfolio” is a term coined by Robert G. Kirby who is considered as one of the greatest investment advisors of all times. The concept of “Coffee Can Investing Portfolio” has its roots in Old West America where people used to hide their valuables in the coffee cans and then the cans were put under a mattress to be kept for years or even decades.
Mr. Kirby thereby suggested that investors should follow Coffee Can Investing approach. They should identify such invaluable companies and invest for at least 10 years.
It includes companies which have decades of experience, strong brand value and competitive edge. These companies are least affected by the change in the stock market. During the difficult times, they might have to increase the prices but it won’t affect them. For instance, if ITC increases the prices on cigarettes people won’t stop buying them because of an increase in price.
Coffee Can Investing strategy neither works on value nor growth; it works on quality investing. It selects a company with at least 100 cr. of market cap. The list is further short-listed to companies which have:
– Been around in the market for at least 10 years,
– Delivered revenue growth of 10% and
– Return on capital employed of 15% in each of these 10 years.
The success of Coffee Can Investing strategy depends entirely on the wisdom and foresight to select the objects to be placed in the coffee can, to begin with.
Professional money managers rarely produce a return superior to that of a broad-based, unmanaged portfolio. Hence, the notion that a Coffee Can Investing portfolio can outperform an actively managed portfolio is not without a basic logic.
This philosophy of Coffee Can Investing is built to identify great companies that have the DNA to sustain their competitive advantages over ten, twenty, thirty years ( or longer ). This is because the ‘greatness’, which this the coffee can portfolio seeks, is not temporary, so, is surely not a short term phenomenon. Great companies endure difficult economic conditions and do not get disrupted by evolution in their customers’ preferences or competitors, or operational aspects of the business.
Often such companies appear conservative, however, they do not confuse conservatism with complacency. Their management teams strive and strategize to deliver results better than the competition, year after year. These traits are rarely found outside of great companies. Given the desire for longevity and consistency of performance around ROCE & Revenue growth, Coffee Can Investing is oriented towards B2C over B2B sectors.
Beating the market is not so easy. It requires perspective, patience, and courage. Your most successful investments grow in value, you make partial sales and transfer the capital involved to your less successful investment that has gotten cheaper. The process results in a stream of capital being transferred from the most dynamic companies, which usually appear somewhat overvalued, to the least dynamic companies, which usually appear somewhat undervalued.
At PMS AIF World, we focus on unparalleled research, unbiased advice, and suitability analysis, and we give this strategy a Thumbs Up.