Review: Coffee Can Investing: the low risk road to stupendous wealth

Coffee Can Investing: the low risk road to stupendous wealth by Saurabh Mukherjea
My rating: 3 of 5 stars

The central idea of the book can be summarized as follows (At least the way I understood it). Rather than trying to time the market, and bet on so-called 100x-1000x unicorn multibaggers, it is best to be invested in the stock market for the long haul. A simple but effective strategy, first coined by Robert G. Kirby is not meant for those who panic and sell out their entire portfolio during market fluctuations.

His observations postulate, given a long enough time period, say 7-10 years, an investment portfolio consisting of stocks from good quality companies, market leaders and such, will be able to outperform the index, and in the process, net the holder a lucrative and relatively risk free return.

This has since been proven through practical data, leading to the rise of the low expense, low volatility, passive index funds. Although it is to be noted that the book came out in 2017, and since then there have been changes when it comes to some of the investment strategies prescribed in the book.

For example, it is mentioned how dividends in equity mutual funds were tax free (no longer the case post 2020), and how debt funds, held over a certain period of time can provide you with indexation benefits and tax breaks (Again, no longer effective after 2018 & 2023). Other than that, and a low key plugging of the author’s own company at every turn and corner, it’s a good, simple to understand book, which introduces to the readers the basics of Investment, particularly pertaining to Stocks and Mutual Funds.

Most of the titular subject matter, in regard to Coffee Can Investing, is focused on Chapter 2, and a few others of the book, which the author has highlighted early on, for those who would like to skip to the good parts.

__________________________________


(The following is more of an unabridged session of free writing from my part, intermingled with personal observations & rants, which at points stray off topic; please feel free to skip it, if it gets too rote. And as is to be expected, so that SEBI doesn’t get on my ass; the following is not investment advice. Mutual funds are subject to market risks. Please read the offer document carefully before investing.)

For the most part, I felt a sort of positive validation, while reading some of the sections when it came to managing expenses to make sure they don’t eat into your profits, as well as how not being influenced by the news and noise surrounding stocks can give you an edge when it comes to capitalizing on your investments.

There is often this cliche at this point, further exemplified by movies such as that one by Martin Scorcesse starring Dicaprio, or closer to home, Jimmy Shergill’s character in Lage Raho Munna Bhai, who lost all of his father’s money in stocks.

This, I’ve observed, is largely a result of panic trading, trying to time the market, and in general following a detrimental strategy of ‘buy high, sell low’. That is, when you see a certain stock rising in price, you think that the growth will never stop and invest in that particular unicorn, all in. Without even taking a look at the fundamentals of the company, or whether the numbers and growth are inflated or genuine.

After a while, when you end up spending too much on it, and suddenly the stock takes a nosedive, you begin to hyperventilate seeing your investment turn to ash. In order to try and save at least a portion of what you lost, you then begin panic selling, and if at the end of the day manage to recover say half of the investment, you feel relieved. But you’ve already fed the vultures and the investment platforms a good chunk of your money, in form of losses and transaction fees.

Fortunately, during my investment journey, this mentality rarely if ever dictated actions for me when it came to building my portfolio. Being a believer in the ‘buy low, sell high’ strategy, which made sense to me. Which is not to say I’m someone who tries to ‘time the market’ as they say. Simply put, after you’ve finalized the entries to your coffee can portfolio, you keep aside an investment corpus, preferably in an easily accessible liquid fund, then wait.

From time to time you review the stocks of interest. When their price happens to fall down to a comparable level which you consider acceptable, buy it; either in bulk or preferably in small quantities. Rinse and repeat. Anyone who has perused the graph of stock prices over time, would notice how for most, there are periods of ‘dips’ in price, and periods of ‘high’. The simple strategy is to keep buying at dips, and sell at a predetermined high.

Which is simple enough to understand, but not so easy to execute in practice. For example, there were times where I bought a stock at a dip, only for it to further bottom out, landing me deeply in red. Other Times you’d sell a stock at a moderate profit, only for it to then climb 4-5x in the next week, leaving you with a sense of loss, at the profits that could’ve been. But that is part of the course, and overtime, you learn to weather these fluctuations.

______________________________________________


The coffee can method of investing, modifies upon the above, while incorporating a long holding period. Similar to described, after identifying your portfolio stocks, you buy them ideally at a dip. But since this strategy focuses on fundamentals and not pricing, some even buy them at whatever might be the current price. Then, you hold, as long as it takes for it to reach the predetermined profit marker that you’ve devised.

Which I believe is the hardest part of the whole strategy. For one, as mentioned before, you would need a certain kind of mindset, to ignore the noise and to hold onto your portfolio, rather than falling into the temptation of selling. (This is a real temptation, as I read somewhere that stock prices can fluctuate as much as 15-26% in either direction. Meaning one year you might be sitting on a 25% profit, while the next you might be 17% in the red).

Secondly, you are assuming that the retail investor engaged in this strategy would have no unexpected financial expenses. All of us know how desperate one can get if there is an unexpected accident or hospitalization. Other than the emotional toll, it also drains your finances like water from a sieve. If things turn to worse you’ll have to prioritize selling your investments to cover immediate expenses. So, in short, even if you have the discipline to stick to the strategy, most don’t have the wealth or assets to comfortably tide over unforeseen circumstances.

One final pet peeve of mine, one which is completely superficial, is the way in which the fictional case studies are presented. Am I the only one who finds it weird that it talks about people who have enough assets to be otherwise considered to be comfortably rich among the layman, and still having financial problems? More accurately, rich people have problems.

Most people you come across in life would be perfectly content with a home to call their own and a job which meets their needs with some healthy amount of savings. They don't lament about how they’re unable to afford their third house because they can’t make money for their second one. Or how they’ll have to put off buying that summer villa in some hill station, or reduce the number of overseas foreign trips to once per year, instead of the usual four; the horror!

Maybe what pisses me off is that there are people out there who are ‘suffering’ from such ‘burdens’ or being rich. Not really a negative, more of a cynical observation.

View all my reviews