Coffee Can Investing by Saurabh Mukherjea – Book Summary
Coffee Can Investing: The Low-Risk Road to Stupendous Wealth by Saurabh Mukherjea offers a powerful yet simple strategy for long-term wealth creation in the Indian equity market. Based on a philosophy of patience, discipline, and quality stock selection, the book provides a clear roadmap for investors who want to build sustainable wealth without excessive risks or constant portfolio tinkering.
Who May Benefit from the Book
- Beginners seeking a low-maintenance investment strategy
- Long-term investors focused on Indian equities
- Professionals who lack time to actively manage portfolios
- People nearing retirement looking to shift to a safer investment approach
- Financial advisors aiming to educate clients on low-risk equity investing
Top 3 Key Insights
- Long-term holding of high-quality stocks reduces risk and increases returns through compounding.
- The Coffee Can Portfolio selects stocks based on consistent revenue growth and capital efficiency.
- High investment costs can erode wealth; low-cost instruments maximize long-term returns.
4 More Lessons and Takeaways
- Create Goal-Based Financial Plans: Identify financial goals by priority (security, stability, ambition), and plan your investments accordingly.
- Diversify Smartly: Mix asset classes—equities for growth, debt for stability. Allocate wisely based on your risk tolerance.
- Be Wary of Real Estate: Real estate in India offers poor rental yields, high costs, and low liquidity compared to financial assets.
- Adjust Strategy Near Retirement: As retirement nears, shift from growth to income, focusing on debt and dividend-yielding funds.
The Book in 1 Sentence
A patient, disciplined strategy of buying quality stocks and holding them long-term offers low-risk, high-reward wealth creation.
The Book Summary in 1 Minute
Coffee Can Investing explains how ordinary investors can create extraordinary wealth by selecting high-quality stocks with consistent performance and holding them untouched for a decade. The authors present the Coffee Can Portfolio—based on specific financial filters—to eliminate weak performers and boost long-term returns. The book stresses the power of compounding, the importance of low costs, goal-based planning, and avoiding speculative assets like real estate. It encourages staying invested through market cycles and adapting portfolios as one approaches retirement. Backed by Indian market data, the strategy is simple, effective, and grounded in research.
The Book Summary in 7 Minutes
The authors of Coffee Can Investing believe that doing less, not more, leads to better results in investing. Let’s dive into the book’s key concepts and insights.
What Is Coffee Can Investing?
The idea comes from the Old West in America, where people would hide their valuable assets in coffee cans and bury them for years. Applied to investing, it means selecting great companies and leaving them untouched for a long time.
The authors propose a specific system for selecting stocks based on long-term financial performance:
| Criteria | Threshold |
|---|---|
| Revenue Growth | At least 10% CAGR for 10 years |
| Return on Capital Employed (ROCE) | At least 15% for 10 consecutive years |
Only companies meeting both conditions qualify for the Coffee Can Portfolio (CCP). Once selected, these stocks are held without further changes for at least 10 years.
The Power of Compounding
One of the most repeated lessons in the book is the power of compounding. When investments are left untouched over a long period, returns multiply significantly.
Here’s how it grows:
| Annual Return | 10 Years | 20 Years | 30 Years |
|---|---|---|---|
| 26% | 10x | 100x | 1000x |
The longer you stay invested, the greater your wealth grows, thanks to exponential compounding.
Why Long-Term Holding Works
The book shares data from the BSE Sensex between 1991 and 2017 to show how returns stabilize over time.
| Investment Period | Return Range |
|---|---|
| 1 Year | -56% to +256% |
| 5 Years | -8% to +47% |
| 10 Years | -3% to +21% (13.1% median) |
Short-term volatility decreases significantly over longer horizons. Investors who ignore noise and hold for 10+ years enjoy stable, positive outcomes.
The Role of Costs and Fees
Fees, though often ignored, drastically reduce wealth over decades. Here’s an example:
- ₹1 lakh invested at 15% for 40 years:
- With 2.5% fee: ₹1.11 crore
- With 0.1% fee: ₹2.58 crore
That’s a ₹1.47 crore difference caused only by fees. The book advises using:
- ETFs with low expense ratios
- Direct mutual fund plans
- Fee-only advisors instead of commission-based agents
Lower cost means more money stays with you.
Goal-Based Financial Planning
A financial plan must align with life goals. The authors suggest:
- Categorize Goals:
- Security (must-have): e.g., child’s education
- Stability (comfortable living): e.g., car, house
- Ambition (aspirational): e.g., luxury travel
- Quantify and Timeline:
- Assign a cost and target year to each goal.
- Factor in inflation to adjust future values.
- Determine Required Returns:
- Match investments to achieve the inflation-adjusted goal cost.
The Real Story on Real Estate
Despite its popularity in India, real estate is often not a good investment:
| Metric | Performance |
|---|---|
| Indian rental yield | ~2.4% |
| US real estate return | 0.4% annually (since 1900) |
| Dow Jones return | ~5% annually |
Add stamp duty, taxes, low liquidity, and maintenance costs, and real estate looks less attractive than equities or debt.
Diversify but Focus on Equities
Equity should be the core of a growth portfolio, especially when goals are far away.
Sample asset allocation:
| Risk Profile | Equity | Debt |
|---|---|---|
| Aggressive | 80-85% | 15-20% |
| Balanced | 60-70% | 30-40% |
Within equities:
- 25% in large-cap ETFs
- 25% in Coffee Can Portfolio
- 25% in small/mid-cap funds
- 25% in diversified mutual funds
For debt, go with high-quality, short-duration funds.
The Role of Small-Cap Stocks
Small-cap stocks, though riskier, have high growth potential. From 2009–2017, the BSE Small-cap index beat the BSE 100 by 4.6% annually.
Key tips:
- Use professional fund managers to handle small-caps.
- Allocate 20-25% of equity to small/mid-cap funds.
- Expect volatility but aim for long-term gains.
Transitioning Towards Retirement
As investors age, priorities shift from growth to income. The book advises:
- Increase debt allocation for stability
- Choose dividend-paying equity funds
- Maintain some equity to fight inflation
- Plan for regular cash flows post-retirement
This strategy balances security and growth in old age.
Review and Rebalance
Your financial life changes. So should your portfolio.
- Review your plan yearly
- Track goal progress and market trends
- Rebalance your asset mix
- Stay flexible and adapt to big life events
This keeps you on course without overreacting to short-term noise.
About the Author
Saurabh Mukherjea is a well-known Indian investor, author, and founder of Marcellus Investment Managers. A former CEO of Ambit Capital, he’s known for his deep insights into the Indian stock market and long-term investing strategies. Mukherjea has written several bestselling books on finance and is a regular columnist and speaker on investment topics.
How to Get the Best of the Book
Read the book slowly and reflect on each strategy. Apply the principles to your financial plan. Stick with the strategy for at least a decade to see meaningful results.
Conclusion
Coffee Can Investing offers a simple, effective, and proven way to build long-term wealth. It’s a must-read for anyone who wants to grow their money with low risk and minimal stress. Let your investments work while you live your life.