Given the exponential awareness regarding investment opportunities, Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth Creation works as a great source of knowledge about the field. Published by Penguin Random House, the book is written by Saurabh Mukherjea, Rakshit Ranjan, and Salil Desai, all with long years of experience in the subject of investing. Diamonds.in a nuanced way, helps investors recognise clean, and well-managed Indian companies offering consistent outsized returns.
According to its authors, “After nearly a quarter of a century, the Indian stock market is seeing broad-based participation from foreign investors and domestic institutions and retail investors. Whilst these inflows come on the back of a decade in which the Indian stock market has created US$1 trillion of
incremental wealth for investors, the fact remains that India remains one of the hardest markets in the world to make money in as over 80 per cent of listed companies fail to generate a real return for investors.”
On the other hand, no more than 20 companies account for over 90 per cent of the profits generated by India Inc. The authors add: “Using detailed case studies, the book explains how investors can identify prominent listed companies which cook their books, year after year. The book also details how investors can use publicly available information to identify great franchises whose shares create enormous wealth, decade after decade. The final chapters package all this information into a user-friendly construct that investors can readily implement.”
Manish Kumar, Commissioning Editor, Penguin Random House, says that we elaborate on the key elements necessary for crushing risk to generate steady and healthy returns from equities in India in this book. “The approach to investing is called consistent compounding. It helps in buying clean, well-managed Indian companies selling essential products behind very high barriers to entry.”
Kumar says this approach has three key elements — credible accounting, competitive advantage and capital allocation. These are the foundational pillars of Marcellus’s investment philosophy that will help investors generate healthy returns without taking extra risk (or loading up on beta). He elaborates, “The first pillar, credible accounting, identifies companies with the least accounting risk. Competitive advantage searches for companies that possess durable pricing power and consistently earn returns higher than their cost of capital. Capital allocation is about finding companies that make the best use of their excess returns (the difference between return on capital and cost of capital, akin to free cash flow) in order to grow their business as well as to deepen their competitive advantages. Knowing what stocks to buy using the three pillars is what we call the consistent compounding formula.”