Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth Creation | Latest must read book by the bestselling author of Coffee Can Investing | Self help, Investment Books by Penguin

Most of the stock market investing books referred by Indians are from Western authors. Most of those investing principles do not usually work in Indian context. Saurabh and his team has been working over years to fill this void of books with investing metrics that would work in India. Diamonds in the dust is a new brilliant addition to the investing books from these guys. I would definitely recommend this book to fellow readers who want to learn investment strategies for Indian markets.

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.

Loved the Rahul Dravid analogy ❤️Will create stupendous wealth following Marcellus 🔥#consistentcompounding

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.

saurabh is real diamond for indian retail investores