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A ₹1 lakh investment in the Nifty in November 1995 would be worth roughly ₹36 lakh today, assuming dividends were reinvested. However, 2/3rds of that ₹36 lakh has come in the last 10 years (with the first two decades feeling slow, boring and punctuated by horrific years like 2008). That’s why long-term compounding is easy to understand but hard to deliver. And that is why our Consistent Compounder Portfolio stands the test of time – it delivers when the economy tanks and the going gets tough.
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Exhibit 1
Source: Vatsal Nahata
The Myth of the “Free Lunch”
” Diversification is the only free lunch in investing” said that late Harry Markowitz whose pioneering work on Modern Portfolio Theory in the 1950s won him a Nobel Prize 40 years later and revolutionized finance. Markovitz’s insight – that by combining assets that don’t move together, investors could reduce risk without sacrificing expected returns – might sound prosaic but is immensely powerful because it:
- Takes away the need for you to forecast the future or chase short term trends & fads;
- Gives you the volatility reduction necessary for you to let time work its magic; and
- Makes long term compounding accessible to you regardless of how much or how little money you have.
But while diversification is enormously valuable, it isn’t really free because diversification forces investors to own businesses they may not love alongside the ones they do. It often means accepting average outcomes on some investments in exchange for lower volatility. And during periods of systemic panic, even diversified portfolios can fall together as correlations converge. So even Warren Buffett – whose multi-decadal investments shown in the exhibit above make him a personification of wealth that long term compounding can generate – saw Berkshire Hathway’s book value fall by 10% during the Great Financial Crisis of 2008.
The money arrives late, and all at once
Since inception the Nifty has compounded at 10.9% a year on the index, and 12.4% with dividends reinvested. 12% might sound ordinary but the chart below helps you visualise how 12% ramps over 20 years to turn Rs 1 lakh to Rs 36 lakhs. In the first ten years it adds Rs 2.2 lakh. In the next ten, Rs 7.2 lakh. In the last stretch, Rs 26 lakh.
For twenty years, compounding looks like it is barely working. The numbers are small, your neighbour’s trading account is doing better, and the urge to do something else becomes unbearable. Then the same boring 12%, applied to a much bigger base, starts producing numbers that look made up.
Exhibit 2: What Rs 1 lakh invested in the Nifty in 1995 added in each stretch of the journey, at the index’s 12.4% total return.
This is why Warren Buffett made the overwhelming bulk of his fortune after he turned sixty. He did not become a better investor in his sixties. He had simply been compounding long enough for the maths to turn steep. Most investors quit in year twelve and never find out.
So why does almost nobody end up with these numbers?
Because compounding asks for the one thing investors cannot supply. The first thing that breaks investors is fear. FundsIndia’s research shows Rs 10 lakh in the Nifty in July 1999, held all the way through to May 2026, becomes Rs 2.84 crore. The same Rs 10 lakh, out of the market for just fifteen trading days across those 27 years, becomes Rs 95 lakh implying that two-thirds of a lifetime’s wealth, gone just because the investor missed fifteen sessions.
Exhibit 3: Rs 10 lakh in the Nifty from July 1999 to May 2026, held throughout versus missing only the fifteen best trading days.
Source: FundsIndia.
If investors know the virtues of long-term compounding, will they still be fearful? The answer is almost certainly “Yes” because seven of the Nifty’s ten best days landed within a fortnight of its ten worst days. The good days are not sitting politely in the calm periods waiting for you to come back. They are buried inside the crashes. In 2020 the worst day of the year was followed within weeks by the second best. The investor who sold to escape the falling was almost mechanically guaranteed to miss the rising.
The second thing that makes long term compounding really hard is boredom. For long stretches nothing appears to be happening, something else is always doing better, and switching feels like action. Charlie Munger put the whole discipline in one sentence: the first rule of compounding is to never interrupt it unnecessarily. The big money, he said, is not in the buying or the selling, but in the waiting.
What time actually does to your risk
Patience is boring and therefore difficult but patience in investing gives you a “get out of jail” card. Suppose you had been unlucky enough to invest in the Nifty at the worst possible moment i.e. just before the GFC began what would you have earned?
Exhibit 4: The worst annualised return from the Nifty across any rolling window of each holding period, using daily data from 1990 to 2024.
Over one year, the worst case was a loss of 57%. Over five years, a loss of under 6% a year. Past ten years, the worst window in the index’s history turns positive.
Over any single year the Nifty has been positive about three quarters of the time. Decent odds, but that is a bet, not a plan. Stretch to seven years and the historical record contains no losing windows at all. Time is not making your returns bigger. It is deleting the bad outcomes altogether.
Over any single year the Nifty has been positive about three quarters of the time. Decent odds, but that is a bet, not a plan. Stretch to seven years and the historical record contains no losing windows at all. Time is not making your returns bigger. It is deleting the bad outcomes altogether.
What we do about it
This is why Marcellus exists in the shape it does. When we launched our Consistent Compounders Portfolio in December 2018, we are not trying to trade cleverly or rotate into whatever is working this quarter. We buy a small number of genuinely good businesses and then get out of their way.
Three things have to be true before a company qualifies.
- The accounts have to be clear
- Capital has to be allocated sensibly.
- The moat has to last.
The idea is older than us. In 1984 an American fund manager called Robert Kirby wrote about a client whose late husband had quietly bought every stock Kirby recommended and ignored every instruction to sell. Years later the portfolio he had never touched was worth far more than the one Kirby had been actively managing, carried by one holding he had simply left alone. Kirby called it the coffee can portfolio, after the tin where families once stored valuables and forgot about them. It remains the spine of how we invest.
Where that leaves us today
It would be convenient to publish this in a rising market. We are not in one. The Nifty is roughly a tenth below its January high, crude is climbing, the geopolitics is ugly and foreign investors have been selling steadily.
It has also been a difficult few years for our style of investing. From 2021 to 2025 the market paid for momentum, small caps and cyclical recoveries, while Quality compounders looked expensive and slow. That is exactly when investors abandon the free lunch, usually in the last stretch before it is served.
What happens next is the interesting part. When money is easy, every strategy looks intelligent and nobody can tell a good business from a fashionable one. When conditions tighten (i.e. Sankat Kaal arrives), that distinction reappears very quickly. Earnings that were being flattered stop being flattered. The businesses that actually compound carry on compounding and holding them stops looking like laziness and starts looking like an edge.
Which brings us back to where we started. The free lunch has been sitting on the table for thirty years. It was never the clever trade, and it was never the perfectly diversified portfolio. It was owning something worth owning and then leaving it alone. The hard part has always been the same. Most people clear the plate long before the food arrives.
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If you would like to put this to work
Our Consistent Compounders Portfolio exercises this very principle by buying the Indian businesses described above, with a minimum investment of Rs 50 lakh. Most of our clients invest with us with ZERO fixed fees and we only get to earn fees if our returns exceed a hurdle of 8% p.a. To invest with us, please click on the QR code underneath this chart.
Consistent Compounders Portfolio — CCP PMS vs Nifty50 TRI, annualised returns by phase
Consistent Compounders Portfolio — CCP performance vs Nifty50 TRI, by period (Dec 2018 till June 2026)
Source: Marcellus Investment Managers; Performance Data shown is net of fixed fees and expenses charged till the last quarter end and is net of Performance fees charged for client accounts, whose account anniversary / performance calculation date falls upto the last date of this performance period; 1 month, 3 months & 6 months returns are absolute; other time period returns are annualized. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the SEC, SEBI or any other regulatory authority.
*For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer https://www.apmiindia.org/apmi/welcomeiaperformance.htm?action=PMSmenu, Under PMS Provider Name please select Marcellus Investment Managers Private Limited and select your Investment Approach Name for viewing the stated disclosure.
Marcellus also provides its clients the option to be directly onboarded, without the intervention or intermediation of any person engaged in distribution services (including distributors/referral partners).
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Asset allocation shall not be considered as Investment advice.
Thanks,
Saurabh Mukherjea
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