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The Unusual Billionaires by Saurabh Mukherjea is a very well written insightful book about the journey of outstanding Indian Companies that have achieved long term success and made a great deal of money for investors.
Superior Financial Performance over a long period of time
Over a long period of time, financial performance is the best reflection of a company’s business stagey. The temporary short duration performance or underperformance i.e. change from one quarterly result to another is not that significant. Great companies sustain superior financial performance for a long period of time. They can endure difficult economic conditions. Their management teams have strategies that deliver results better than their competitors.
10% Revenue Growth & 15% Return on Capital Employed
The filter that Saurabh Mukherjea used to identify and do further research is consistent corporate performance i.e. growing with 10% revenue growth and 15% return on capital employed (ROCE) for every consecutive year over the past decade i.e. 2000-2015-time period. In case of banking and financial services company, the filter used is Return on Equity of 15% and loan book growth of 15%. Over 99% of the publically listed Indian companies fail to fulfill this this filter over the past decade.
The companies that satisfied the results are Asian Paints, Astral Poly, Berger Paints, ITC, Marico, Page Industries, HDFC Bank Limited, Axis Bank Limited. The book is enriched with anecdotes, strategies of these unusual companies, the multi-decadal evolution of these great companies and how they have created sustainable competitive advantage. The author has done extensive research on these companies, getting insights about the management strategy from current management to past management, promoters, distributors, customers of the company.
“Persistence is what makes the impossible possible, the possible likely, and the likely definite.” Robert Half
Common theme of these great companies
The common theme of these companies are
The management team is focused on the core franchise and the business instead of being distracted by short-term gambles outside the core segment.
The management team is relentlessly focused on deepening its competitive moat over time.
The management/board is sensible about capital allocation. If the cash cannot be deployed to good effect by the company in growth or diversification in related business, its more sensible to distribute it to shareholders.
These businesses are not run like a typical promoter mentality of centralizing power and wealth in his or his relatives hand. These businesses are run in a professional meritocratic way with long term value creation in their approach.
The focus on running a business efficiently, creating and sustaining competitive advantages, and prudent capital allocation lie at the heart of these winning companies. It’s important for the promoters & management to focus on core business or if there is a long term potential diversify on related business rather than an unrelated business. The short term gambles quite often result into a distraction from the core business, and it also adversely impacts the Return on Capital Employed (ROCE).
“Strategy is about making smart choices and execution is about relentless implementation.” Phil Rosenzweig
The Unusual Billionaires by Saurabh Mukherjea is an insightful book filled with tons of management lessons in terms of effectively managing business, and perspective to analyze business in terms of investment. The filters and systematic approach described in the book to understand business is pretty useful.
We always wanted to be rich 😉 when name comes as stock market. Author have wast experience in PMS and picking stock for compounding and he is giving meaningful insight which many market guru will charge you more read the direction, reason behind the explaination you be able to create good wealth in compounding
Here is the gist of the book. His coffee can portfolios are discussed here. Asian Paints, Berger Paints, Astral poly, Page Industries, HDFC Bank, Axis Bank, Marico. He talks about these companies their inception and growth story in detail.
He talks bout the IBAS framework - Innovation, Brand, Architecture (network) and Strategic Asset (IP) as the the baseline for shortlisting the portfolio.
The fundamental criteria for a good stock is 15% ROCE (ROE for Banks) conflated with 10 % Revenue growth considered over a tenure of a decade. Coffee can investing is based on American philosophy of putting money in a coffee can and often forgetting about it. The authors says buy these type of stock and hold them for atleast 10 years.
Good book and provides an Indian context to otherwise over subscribed topic of value investing