Saurabh MukherjeaDiamonds In The Dust: Consistent Compoun

The book has been written to its best capacity with fitting analogies and substantial concepts.

At the outset, I would like to inform all prospective readers that, this book is not meant for everyone. You need to have some understanding of finance to appreciate content of the book. For instance, you must know concepts like Cash Flow, RoCE etc. to derive maximum benefit from the book.Let me first share something completely new that I learnt from this book. I was not aware of John Kay's IBAS framework. The book has not only exposed me to the framework but also create that curiosity to read more about the framework.The consistent compounding formula in the book which highlights that investors should evaluate a company on the basis of '" Clean accounts",' "Competitive Advantage" and "Capital Allocation" is vey insightful. While these aspects have been mentioned in many other books but have never been presented in such a structured manner.The book also covers financial shenanigans in details. It has examples of many companies which have conducted fraud by manipulating their books of accounts. Manpasand Beverages, DHFL etc. are some of the many examples discussed in the book.Now, let me mention two points where the book disappoints. The examples covered in the book about success stories of companies are very common. I mean I won't need a separate book to know why should I invest in Pidilite or HDFC Bank.The chapter on "The Four Most Damaging Myths in Indian Investing" is also disappointing. I understand that the authors want to drive home the point that equity investment is the best investment option but stating that one should avoid investment in real estate or gold because empirical evidence suggests so, is not a great idea. Financial planning is based on goals. We need to know how to reach goals and there could be different roads to reach the same goal. Investment planning also depends on various factors that need to be analyzed.In brief, the book is a good read.

Saurabh Mukherjea, founder of Marcellus Investment Managers, one of India’s leading portfolio managers, has, together with his colleagues Rakshit Ranjan and Salil Desai released “Diamonds” which comes to the timely rescue of the beleaguered Indian investor already wondering about the adequacy of returns from his investments in real estate, gold, and fixed deposits, not to speak of the unrelenting pursuit of distribution agents from mutual funds and the like he has to face every day who are constantly eyeing what remains of his pot of savings that he expects to see him through both during rainy days and in retirement. “Diamonds” begins persuasively by saying that equity investing in India parallels Test Cricket. To identify a great company and its potential for consistent growth the skill set of an intelligent investor is analogous to the technical prowess and mental makeup of a batsman like Rahul Dravid. “In Test Cricket, you choose your shots carefully, leave the deliveries outside the off stump alone, score your ones and twos regularly, and dispatch the occasional loose ball to the boundary. The key to successful investing, therefore, is to first leave the risky stocks alone, then to identify the ones that can grow earnings and cash flows steadily, and once you find such stocks, to bet big on them……More crucially, investing requires the patience to play a long innings, which, as in Test Cricket, is the assured way to victory.”After demonstrating that gold and real estate provide measly returns in comparison to the equities that are carefully chosen, the authors also prove that timing the market for better returns is also a futile exercise. (“Longer the time horizon an investor has the lesser is the impact of timing.”) It also demonstrates that GDP growth does not actually drive stock markets. Returns in a stock are only as good as its underlying business and the competence of the promoters who run it. Besides, the company should have a business which makes goods or services having a perennial demand as well as a sustainable competitive advantage. Most critically, the company must have clean accounts, prudent and efficient capital allocation (as well as human capital allocation), with strong free cash generation and massive barriers to entry against competition. The presence of the above factors would result in a process of “crushing risks” (accounting, revenue, profit and liquidity risks) that are associated with any piece of business. The book argues that there is a very strong correlation between accounting quality and shareholder returns and also warns its readers that a Consistent Compounder should also be subject to lethargy tests to rule out complacency in performance as time elapses and the business gains maturity. In the mater of capital allocation, the book familiarises the reader with the Ansoff Matrix which examines whether growth emerges from new products or from new markets. There are interesting case studies of Tata Steel, Piddilite and Kotak Mahindra Bank. Depth of management and succession planning in a company are also key. The case studies of HDFC Bank and Asian Paints are, in this regard, are quite interesting.“Diamonds” attempts to provide straightforward answers to the two fundamental questions in investing : what to buy and when to buy. 5 out of the 7 chapters are devoted to these questions and the reader does indeed emerge wiser at the end of what is a fascinating read as the arguments and points made are strongly supported with facts and case studies. Some of the stars in the Consistent Compounders Portfolio are juxtaposed with spectacular failures that have bought shareholders to ruin. The failures of Satyam Computers, Ricoh India, Amtek Auto, Cox and Kings, Manpasand Beverages, Dewan Housing, Deccan Chronicle are clinically analysed. Exhibits 11, 12, and 16 containing forensic ratios and checks are critical reading. The most important part of the book is Appendix I devoted to the accounting ratios and checks, governance and forensic checks, sources of competitive advantages (including strategic assets), innovation and brand advantages, capital allocation, timing and pricing checks. Sir John Kay’s IBAS framework in Appendix 2 (adapted by Marcellus) and his preface graces “Diamonds”. As he completes the book, the reader may no longer seek tips, or approach stock picking on the basis of hunches or gut feel or even worry about P/E multiples, capital asset pricing models, or efficient market hypothesis. On the other hand, he may be emboldened to ask tough questions from his portfolio managers on their stock selection if he is not adventurous enough to do that exercise himself !For existing investors in the Consistent Compounders Portfolio of Marcellus, the book is a more elaborate re-statement of first principles that Saurabh and his team have repeatedly put forth not only in their regular presentations but also in their earlier lucid and interesting books, “Coffee Can Investing: The Low-Risk Road to Stupendous Wealth” (Penguin India, 2018) and its pre cursor “The Unusual Billionaires” (Penguin India, 2016). The principles and practice expounded in Diamonds will not stale. They do need to be re-stated often.

I finished reading Diamonds in the Dust on Kindle.I found the book very well written and it gripped me like an unputdownable thriller. The concepts are quite succinctly explained with numerous examples and figures duly updated. The narrative, drawing out the very many skills of Rahul Dravid and its relevance for an Equity Investor is a great way to communicate the underlying success principles, applicable to both the endeavors.The key takeaways summarised at the end of each chapter will be quite useful when periodically revisiting the book.On the whole a great work on the subject. I compliment Mr Saurabh and all others who have worked on this wonderful book.

Amazing..... no wonder Saurabh now manages 13000 ce portfolio...... many concepts were known if you have already read multiple investment books ..... but what this book contextualises is putting them in Indian scenario where nominal GDP was 13 % for last decade , great investment checklist , some amazing case studies like Abbot , Divis lab , Asian paints , Amtek auto , DHFL , what to watch out for in corporate frauds , principles like 10% Revene growth , why to hold for 10 years minimum, when to buy or sell ( basically no need time on consistent compounders) , identifying the strengths of company be it its process , brand , innovation..... the best is technique has to come along with behavior where he links it with Rahul dravid analogy.... I loved it and picked some of his researched stocks for my personal portfolio ( the little Champs) ..... a big thank you Saurabh for writing such a wonderful book

The book is really helpful to anyone who is planning to invest or has already invested in Indian equities. I liked the chapter which deals with the question of market timing. The book has few technical details but it comes with the subject. Overall a great book and a must read.

The authors have been open and explained the concepts quite candidly. Good reference book to build one's investment philosophy. Notwithstanding the hardsell and couple of case studies which were elementary compared to the rest of the content ..overall excellent book and worth a second read.

Great book for what to look for when investing in companies

I have read lot of investing books, but most of them are from US perspective. But this book gives an Indian perspective. The writing is also not complex. Understandable to Leyman. Recommend it to anyone interested in investing.