Coffee Can

‘Time is the friend of the wonderful company, the enemy of the mediocre.’ ~ Warren Buffett

How Does the Coffee Can Investment Strategy Work?

  1. Focus on high-quality companies: The coffee can investment strategy involves investing in high-quality, well-established companies with a consistent track record of growth and profitability. To be considered as a sound investment opportunity, the company should demonstrate that it has been in business for at least 10 years and sustainably generating returns of a minimum of 15% on its capital employed over this period.
  2. Look for market leaders: These companies are typically market leaders in their industry, with a competitive edge that allows them to maintain their market position over the long term.
  3. Invest in a small number of companies: Rather than trying to diversify across a large number of companies, the coffee can investment strategy involves investing in a small number of high-quality companies.
  4. Hold onto the companies for an extended period of time: Coffee can investors don’t worry about short-term gains and market volatility. Once you’ve selected your stocks, hold onto them for an extended period of time, typically 10 years or more – don’t let fear and greed get the better of you.
  5. By holding onto these companies for an extended period of time, investors can benefit from the power of compounding, as their returns are reinvested and grow over time.
  6. By investing in high-quality companies with a strong track record of growth and profitability, investors can benefit from the long-term growth potential of these companies.

Coffee Can Investing Strategy (Finding 100 Bagger)

“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”  ― Warren Buffett

Coffee Can Investment Strategy involves buying and holding a portfolio of high-quality companies for the long-term, typically ten years or more. The strategy is based on the premise that investing in the right high-quality companies will result in significant capital appreciation over time.

The concept was popularized in India by Saurabh Mukherjea in his book “ Coffee Can Investing:  The Low-Risk Route to Stupendous Wealth”.

In this strategy, investors pick a group of high-quality companies with a proven track record of generating consistent profits, revenue growth and return on invested capital (ROIC). The chosen equity stocks are held for an extended period irrespective of market conditions or short term volatility.

This strategy allows investors to avoid the temptation of selling their equity holdings during short-term market volatility. It protect the investor from their own bad decision and investing behavior.

You only need one of the Coffee Can companies to hit and become a 100 bagger.

But, how to look at a small cap company and know that they have a runway.

Look at the ownership and use your imagination to determine if a company can have organic growth and expand into other markets.

At the end of 10 years, you will have some stocks that have not grown, others that have lost value, and two to four outperformers. Those outperformers will provide a high return on investment.

It refers to companies that have generated a Return on Invested Capital (ROIC) of over 15% every year with the Coffee Can Investing approach. This makes the approach a low-risk route to making stupendous wealth.

Coffee Can Portfolio is mostly concerned with stock quality. As an investor, you must choose a quality stock, which signifies a fundamentally strong company. Here are some points to build a Coffee Can Portfolio.

  1. The company should have been in existence for at least 10 years.
  2. The revenue growth should be at least 10% year per year.
  3. ROIC of at least 15% for 10 years
  4. Market capitalization should be more than $500 million USD
  5. The company should have good brand value.
  6. The company should have a competitive edge.
  7. Founder or CEO has skin in the game focused on driving value in the business. Executive management is strong. 

For instance, let’s take an example of a toothpaste company. If a toothpaste company’s prices are increased, will people stop brushing? The answer is “NO.” Similarly, this strategy neither works on quantity nor growth; it works on quality investing.


References:

  1. https://groww.in/blog/the-coffee-can-portfolio

About Vitamin D | WebMD

Experts aren’t sure if a lack of Vitamin D leads to depression or if it’s the other way around.

But studies show a link between the two. Research is ongoing to see if raising your vitamin D levels can help with symptoms and boost your mood.

Additionally, scientists are still figuring out exactly how well vitamin D can treat or even keep you from getting the influenza virus.

One study showed taking vitamin D drops in the winter helped lower the number of Japanese schoolchildren who got the flu. It’s clear it’s an important part of a healthy immune system. Your body can’t fight germs well if it doesn’t have enough.

And, healthy vitamin D levels can slow bone loss. It also helps ward off osteoporosis and lowers your chance of broken bones.

Doctors use vitamin D to treat osteomalacia. That’s a condition that causes soft bones, bone loss, and bone pain.

Vitamin D Deficiency

About 4 out of 10 Americans don’t get enough vitamin D. If yours is low, you might not eat enough foods with it. Or you might have a health condition that stops you from absorbing it. Or you might just need more sunlight.

Problems converting vitamin D from food or sunshine can set you up for a deficiency. Factors that increase your risk include:

  • Age 50 or older
  • Dark skin
  • A northern home
  • Overweight, obese, gastric bypass surgery
  • Milk allergy or lactose intolerance
  • Diseases that reduce nutrient absorption in the gut, such as Crohn’s disease or celiac
  • Being institutionalized
  • Taking certain medications such as seizure meds

Using sunscreen can interfere with getting vitamin D, but abandoning sunscreen can significantly increase your risk for skin cancer. So it’s worth looking for other sources of vitamin D in place of prolonged, unprotected exposure to the sun.

Make sure you take Vitamin K with Vitamin D

Vitamin K is an essential nutrient that helps your blood clot and your bones grow the way they should. It also may help prevent the bone disease osteoporosis and protect you against heart disease. You can get vitamin K from certain foods, and most diets in the United States contain enough of the daily recommended goal (90 micrograms for women and 120 micrograms for men).


References:

  1. https://www.webmd.com/vitamins-and-supplements/ss/slideshow-low-vitamin-d

Intermittent Fasting

Is fasting the secret to a healthier and longer life?

👉 Is fasting the key to a longer and healthier life? For more information read this article about Professor Longo’s research and the benefits of fasting.

https://www.menshealth.com/uk/nutrition/a45545208/benefits-fasting/

 

 

 

Ron Baron – Never Owned a Bond

Every fourteen years, the purchasing power of the U.S. dollar is cut in half due to inflation, states billionaire investor Ron Baron, chairman of Baron Capital. Furthermore , he said that he was “amazingly bullish” on the market and was buying assets “every day.”

Buffet’s Owner’s Earnings

Owner earnings (OE) is a valuation method detailed by Warren Buffett in Berkshire Hathaway’s annual report in 1986. He stated that the value of a company is simply the total of the net cash flows (owner earnings) expected to occur over the life of the business, minus any reinvestment of earnings.

Owners’ earnings, also known as cash flow for owners, remains one of the more accurate measures of how much money we can make from an investment and helps calculate intrinsic value.

The formula for owners’ earnings is as follows:

OE = Net income + Non-cash charges – Maintenance Capex +/- Changes in working capital Where the below:

  • Non-cash = depreciation, amortization, impairment + other charges
  • Maintenance Capex = Cash a company spends to maintain normal biz operations.
  • Changes in working capital = adding the items under “Change in operating assets and liabilities” from the CF statement.

We will use a combination of cash flow statements to find the numbers.

To simplify some of this maintenance, the capex is an imprecise number that Buffett didn’t define precisely.

Many suggest different calculation methods; we will use the CF number to simplify.

Using $MSFT as our guinea pig for the year ending 2022. Below are the numbers taken from the financials:

  • Net income = $72,738
  • Non-cash = $16,260
  • Capex = ($23,866)
  • Changes in working capital = $446

Plugging in the numbers for $MSFT, we get:

Owners Earnings = $72,738+$16,260-$23,866+$446 = $65,578

Per share = $65,578 / 7,496 = 8.74

When compared to current P/FCF equals 8.70

Use these criteria to eliminate 95% of stocks:

Revenue growth 12%
Shares outstanding <2%
Net debt to FCF below 5x
Free cash flow growth +15%
Return on Invested capital +15%
Earnings per share growth +15%

12 companies that qualify:

 

Cap Rate

The cap rate, an abbreviation for “capitalization rate,” is a real estate metric that reflects the expected rate of return on rental property investments.

The Cap Rate, or “Capitalization Rate,” is a fundamental real estate valuation ratio that compares a rental property investment’s annual net operating income (NOI) to its current market value.

The cap rate formula is the ratio between a rental property’s net operating income (NOI) and its fair market value (FMV) as of the present date, expressed as a percentage.

Cap Rate

  • The cap rate is defined as the potential rate of return on a rental property building, such as a commercial real estate investment.
  • The cap rate formula divides the net operating income (NOI) of a rental property at stabilization by the property’s market value as of the present date.
  • < UNK> Real estate practitioners frequently use the cap rate to compare different investment opportunities to determine the property with the most attractive risk-return profile.
  • The higher the cap rate, the higher the risk and potential return – all else equal.
  • There is no reasonable cap rate, per se, because the decision is subjective and contingent on the specific investor’s risk-return profile. Still, most commercial real estate investors target a cap rate between 4% to 10%.