Saurabh Mukherjea is the author of the best-seller “Gurus of Chaos”. His USP is that he not only tutors us on the sensible techniques that we should adopt to find winning stocks but he also goes ahead and gives us a ready-made Model Portfolio of top-quality stocks to work on.
In his latest article in Forbes India (What entails investing in a brave new world), Saurabh points out that his study of the best-performing Indian portfolios over the past 15 years suggests that a sensible way to invest in stocks for the long run hinges around investing in companies (a) whose business models are easy to understand; (b) which generate healthy levels of return on capital employed (RoCE); and (c) which have a healthy revenue growth.
He explains that Indian companies which generate healthy RoCE and healthy revenue growth over long periods of time are very hard to find. However, if you do pack your portfolio with such companies, you usually get market-beating returns.
Saurabh points out that if, for example, on June 30, 2000, an investor had invested in seven companies which had in the preceding 10 years generated RoCEs greater than 15 percent – and revenue growth above 10 percent – every year then, over the next 10 years (2000 to 2010), the portfolio would have compounded annually at 16.7 percent versus the 14.1 percent that the Sensex delivered over the same period.
Saurabh adds that if the investor had repeated the same exercise a year later, he would have had six stocks in your portfolio and in the 10 years from June 30, 2001, the portfolio would have generated 21.7 percent per annum versus the Sensex’s 18.5 percent.
Saurabh calls this approach to finding winning stocks, the ‘Coffee Can Portfolio’, and emphasizes that it has outperformed the Sensex fairly metronomically over the past 15 years.
Using the last 10 years’ financial data, Saurabh and his colleagues at ambit Capital have created a Coffee Can Portfolio for the next 10 years containing 16 stocks (see table).
The Coffee Can Portfolio will enable the patient investor to earn healthy returns from equities Saurabh says in a confident tone.