Book Review: The Coffee Can Investor

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Review of The Coffee Can Investor. A Stock-Picker's Journey to Build Generational Wealth

By Rudi Filapek-Vandyck, Editor

The Coffee Can Investor is the modern-day equivalent of The Intelligent Investor for those who are able to put day-to-day volatility, noise and macroeconomic considerations aside and let quality businesses reward patience and trust, with time on their side.

I genuinely enjoyed reading about the origins of this book and its investment philosophy, but before we dig deeper into those aspects, let me first explain how I obtained my copy earlier this year.

In July, I received an email from an Australian investor who had been reading my analyses and updates on TechnologyOne ((TNE)).

As most of you would be aware, I consider TechOne one of the highest-quality businesses on the Australian stock exchange and have been highlighting its key features and performance for nearly two decades.

Chris had paid attention, done his own research and bought the shares. Today, he is a happy camper as his investment has paid off in spades.

As I have highlighted numerous times, when a business grows at 15% year in, year out, it doubles in size roughly every five years.

TechOne has done better than that since 2004.

Chris’s email in July mentioned The Coffee Can Investor for one particular reason: the 13 companies selected for potentially significant returns over the decade(s) ahead include one Australian company and, yes, that one is TechOne.

That’s quite the achievement once one realises the fund manager behind the book is American and the investments chosen are the end result of scanning and researching 58,000 publicly listed businesses worldwide.

Chris suggested we meet up in the city, where he’d hand me a copy, with a friendly request to sign his. I promised I’d write a review.

The Coffee Can Investor tells the tale of investment manager Matt Ankrum through the eyes of veteran media executive Neeraj Khemlani, who, during the course of writing this book, decided to also invest in the 13 stocks selected, alongside Ankrum’s three daughters.

Ankrum’s ambition is to leave his daughters with an investment portfolio that will substantially increase in value by investing in selected companies that could potentially become 100-baggers.

An investment that grows to 100 times its original value represents a gain of 9,900%. An original investment of $1,000 ultimately grows to $100,000. In the same fashion, $10,000 turns into $1m and $100,000 grows to $10m.

It is by no means difficult to see the attraction behind the principle, but how does one achieve such a goal, beyond being patient and letting time and markets do their magic?

The 12 other companies chosen —mostly US-based, but also from Canada and the UK— share similar core characteristics with ASX-listed TechOne.

Think essential services, excellent returns, a business-to-business rather than consumer-oriented focus, loyal customers, recurring income, healthy balance sheets, high margins and enduring competitive advantages, plus ongoing strong growth prospects.

Equally important, not all chosen investments need to reach the goal set. Even a few successes would represent a significant reward.

Few of the selected names would be familiar to Australian investors, just as few investors in the US would previously have heard of TechOne, but each selection is extensively documented and explained in surprisingly easy-to-digest, uncomplicated narratives.

This is not a book full of calculations or explanations of why one should know about price-to-earnings ratios and read annual reports right through to the closing paragraph.

It will irritate your average dyed-in-the-wool Benjamin Graham groupie, though, with statements such as a cheap valuation matters less when one invests in high-quality businesses with a distant investment horizon in mind.

Yes, I have made similar statements over the years, in relation to TechOne and other businesses.

For the record: Ankrum is a big Buffett and Munger fan and has travelled numerous times to the annual Berkshire shareholders’ gathering in Omaha.

Each company chosen has its own idiosyncratic story to tell, with valuable input and perspective for investors looking to emulate Ankrum’s investment philosophy.

Some of the choices will surprise, no doubt about it, even though the explanations that follow seem logical and straightforward. One point of criticism is that the chapter about TechOne is the shortest in the book, but I am now most definitely showing my own personal bias.

Shareholders in WiseTech Global ((WTC)) might have mixed feelings about major competitor Descartes being one of the 13 businesses selected.

Anyone willing to take up the challenge? This book can be your mentor, your bible, your inspiration, as well as your action plan.

I suspect maintaining confidence and patience through the ups and downs along the way will be your hardest challenge. You will also be out of sync with the trends of our time.

Sharemarkets are planning for 24-hour trading. We all know that’s not turning any of us into better investors, right?

The coffee can in the title is akin to a shoebox or bottom drawer: somewhere to stash share certificates and leave the investments untouched, allowing time and compounding to work their magic irrespective of tomorrow’s news headlines.

****

The Coffee Can Investor: A Stock-Picker’s Journey to Build Generational Wealth. Author: Neeraj Khemlani. Published by Columbia Business School. 270 pages.

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