Always prepare the list of items to buy before investing in the market - Saurabh Mukherjea

Sunoj Nambiar
Thursday, October 5, 2023

A leading fund manager, whose book like "Coffee can investing" and “Diamonds in the dust” has helped many to build an everlasting portfolio, Saurabh Mukherjea, is respected by market participants for his sharp views and forensic analysis of companies.

The Founder and Chief Investment Officer of Marcellus Investment Saurabh Mukherjea was in Kuwait to attend a seminar organised by the Kuwait Chapter of the Institute of Chartered accountants of India.

In an exclusive chat with, Saurabh shares his investment philosophies, approach and experience for the benefit of readers.

IIK: No doubt, this is the best time for Indian investors. Where do you see the market by end of this year?

Saurabh: We never lose sleep about market as a whole. My grandmothers used to tell me that whenever you are going to a market to buy things, take a list of the items that you want to buy. Otherwise you will end up buying things which are not required. The stock market is also same. If you don’t have the list of stocks to pick from the market, you will end up buying stocks which are not required for your portfolio.

Thinking about the stock market as a whole doesn’t make much sense. There are overpriced companies in the market as well as under-priced companies.

IIK: That is very true. How that list should be?

Saurabh: Over the last 10 years, the Indian market has created wealth about 2 trillion dollar wealth. No other market barring America has created 2 trillion dollars worth of wealth over the past decade. Out of this 2 trillion dollars, 1.6 trillion dollar wealth is created by 20 Indian companies. You are not seeing this scale of wealth creation by companies in any other market barring USA. This multi-trillion dollar wealth creation will continue courtesy well run Indian companies. Our job in India is to help Indian families and institutions around the world to participate in this double engine story – India and America firing in unison over the next decade.

We call it double engine growth because we are combining the compounding muscle of well-run Indian and American companies. These two countries are now drivers of global prosperity. Around 60% of the total wealth created by the global stockmarket over the last 10 years came from just these two countries.

IIK: How a common man can identify a good company before investing in stock?

Saurabh: We write books for the common man, we published our first book "The Unusual Billionaires" in the year 2016. In the year 2018, we published our second book "Coffee Can Investing". Both books explain for the common man our style of investing i.e. how to build a portfolio of a dozen or so well-run companies. In the year 2021, we launched our third book "Diamonds in the Dust".

All these books are for the common man to understand the companies we invest in. The books also explain what are the governance and accounting issues need to be wary of. If you read these books carefully you will understand how to do forensic analysis of companies. We are pretty sure, you will be able to select good companies for your portfolio if you read our books.

And for those who are thinking that reading books is not their cup of tea, we are there at Marcellus Investment Managers offering a curated portfolio for you in both Indian market as well as in the US market. Investing is not only about identifying the right companies to invest in, it is also the courage of your convictions to invest your money when all other people are scared and running away from these companies. We do that at Marcellus for our investors.

IIK: You always advocate not to sell stocks of good companies. So when one should sell his investment in Indian equity?

Saurabh: Unless you really need the money to fund a life event such as your children’s higher education, there is no point in selling high quality stocks. For a consistent wealth compounding, you need to stay invested in the market. Don’t exit your high quality portfolio unless there is a specific financial need that you need to address. Whenever you get a bonus or some extra income, keep adding to your portfolio of high quality stocks.

Sourabh Mukharjea in Kuwait

IIK: In that case, for our lifestyle expenses such as retirement life etc., how do you suggest a withdrawal plan?

Saurabh: In our style of investing we run segregated portfolio for our clients. If any client needs an X amount of money yearly to lead a reasonable amount of life, our client support team will help that client sell 5% or 10 % of his portfolio annually to help the client finance his lifestyle. At Marcellus, our portfolios have historically compounded at a little over 15% p.a. net of all fees and costs. So provided the client does not pull out more than 15% per annum to finance his lifestyle, his corpus with us will keep growing.

IIK: If the market is going down, at what level, one need to worry?

Saurabh: The basic answer to that is don’t invest in stock market if your investment horizon is less than 3 year. You need at least three years even if you invest in the best companies. You cannot time the market. If you try to time the market, you will be waiting till the end of your life to enter the stockmarket. Second is don’t run away from a market correction. A correction is an opportunity to increase your investment in the stockmarket.

IIK: You mentioned the double engine portfolio with a combination of Indian and US market. Why not just Indian market?

Saurabh: Our global portfolio is investing in US and developing European markets. For the US market, the down side volatility is less compared to the downside volatility of the Indian stockmarket. If you create a portfolio which has a mixture of Indian and American stocks, you can create a portfolio with lesser volatility on the downside along with Indian and US muscle on the upside.

If you are looking for super compounding over the next 10 year, look at your overall wealth and minimise your real estate investment. Mix up your wealth in such a way that it contains half Indian equity exposure and half US exposure. This will give you a double engine growth on your wealth.

IIK: That bought me to the question of real estate. When it comes to investing, what is your views on Gold and Real Estate?

Saurabh: The dollar compounding of gold is around 5 to 6 percent. It’s one third of compounding created by high quality Indian and American companies. At the same time, the down side volatility of gold is same as that of stocks. Gold is as volatile as stocks, but gives returns which are one-third of that generated by high quality stocks.

In case of real estate, long term returns are bound to be similar to GDP growth. If Indian real estate is fairly priced today, the compounded growth for 10 year will be roughly around 10 percent. But the major issue here is that the real estate in India is not fairly priced. Hence it is hard for me to understand, how real estate can give you annual compounding anywhere close to 10% p.a. To make things worse, the rental yield in India is roughly around 1.5 %. Why anyone should borrow money at 7-8% to invest in an asset yielding 1.5% beats me.

Sourabh Mukharjea in Kuwait

IIK: How can we manage the risk of investing?

Saurabh: There are two factor - risk and uncertainty. Risk is permanent loss of your capital. Many of those invested in the Indian real estate market must have realised that when they buy an overpriced house at some part of Gurgaon, Noida, Chennai, Bangalore or Mumbai, even a decade later, you will be unable to get back the original capital invested in the property. That is the risk of capital loss. Risk also arises when you invest in overpriced start-ups. For a good quality stock, risk of capital loss is very low. Therefore equity investing gives you a chance to minimise risk.

Uncertainty is different. Uncertainty should be embraced. For example, if a great cricket batter or a great company is having a poor run of form, you don’t abandon the batter or the company (due to the uncertainty created by the poor run); instead you double down your investment in batter or the company. If you stay invested in a good quality stock, the chances of not making a meaningful returns over extended time periods is very small. Smart people embrace uncertainty. To handle the uncertainty is where you need to train yourself by reading our books. We at Marcellus have trained ourselves over almost 20 years now to handle uncertainty. We handle the money of 10,000 families and still able to sleep well at night.

IIK: No doubt India is on the growth mode now. Are you worried about the next year election?

Saurabh: Elections happen all the time in India. The most booming part of India is southern India. Tamil Nadu, Karnataka, Telangana, Andhra, etc are contributing to almost half of India’s GDP. The government changes in these states after every election. And yet these states continue to boom decade after decade. The whole world is coming to South India to invest and I doubt whether companies in these states are worried about election result.

Whatever government comes, we have seen a fair bit of continuity in the decisions taken by the previous government. Therefore elections in India are rarely a disruptive event from an investor’s standpoint.

IIK: And finally, what is your advice for the beginners in the market. How they should plan their investment?

Saurabh: IIK Readers in Kuwait have the privilege of living in this wonderful oil rich economy. I would urge you to think about generating the wealth you are earning in Kuwait across the Indian and American economies and thereby compound your wealth. Just for your understanding, at the age of 25 if you invest 1 lakh rupees, with 20% compounding, at the age of 55 your investment will be worth Rs 2.5 crores. We are trying through our books and seminar to generate this awareness among the young generation. Even small amounts invested in high quality stocks early on in your career, become massive amounts of wealth 20-30 years later.

So keep investing in clean, well run companies to compound your wealth.


Disclaimer -
Note: The above material is neither investment research, nor investment advice. Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by the Securities and Exchange Board of India (“SEBI”) as a provider of Portfolio Management Services and an Alternative Investments Manager. Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor. No content of this publication including the performance related information is verified by SEBI or US SEC. If any recipient or reader of this material is based outside India or US, please note that Marcellus may not be regulated in such jurisdiction and this material is not a solicitation to use Marcellus’s services.


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