Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth Creation, An Excerpt

Devika was acutely aware that time was running out for her. Her net worth, excluding the property in which she resided, was Rs 9 crore. This consisted of real estate (i.e., residential apartments in south Mumbai) worth Rs 6 crore, physical gold valued at Rs 2 crore and fixed deposits of Rs 1 crore. To maintain her lifestyle post-retirement, a decade hence, Devika will need at least Rs 20 crore. This means her current wealth of Rs 9 crore would have to compound at an annual post-tax rate of return of 9 per cent over the next ten tears.

In desperation, Devika finally visited the SEBI website and found the section that contains the names and contact details of all SEBI-Registered Investor Advisors (RIA).1 She found the details of an RIA, Vishnu Krishnamurthy, who lived closed to her residence in Mumbai. After spending a couple of hours with Vishnu, Devika realized that over the next decade she had to put her net worth into two buckets.

The first bucket consisted of a ‘rainy day’ pot that Devika would create for her mother and for herself, in case she lost her job or in case either she or her mother had a critical illness that required Devika to quit her job and pay for the medical expenses. After much deliberation, Devika put Rs 4 crore into this pot, and Vishnu advised her to invest these monies in Government of India tax-free bonds, which yield around 6 per cent per annum.

The second bucket consisted of the remaining Rs 5 crore. Vishnu advised her to invest these monies in Marcellus’s Consistent Compounders PMS Portfolio (CCP). Devika’s hackles immediately went up, as she had heard from her friends that the stock market is a very difficult place in which to make money. Vishnu first requested Devika to watch a video available on the Marcellus website about how the CCP aims to deliver relatively healthy returns in the high teens, and with low volatility (typically, less than half that of the Nifty50 basis back-testing data for the last twenty years).2

After watching the video, Devika had a reasonable idea of how Marcellus invested their clients’ monies. However, she was still not convinced that firms like Asian Paints could consistently compound her wealth. After all, she had seen many people in her social circle lose vast sums of money on dozens of Indian stocks over the past twenty years. In response, Vishnu showed Devika some of the charts from Saurabh’s 2020 book The Victory Project: Six Steps to Peak Potential.

Vishnu began with a histogram of the Sensex, which showed that in twenty-one of the last thirty-two years (i.e., in 66 per cent of the years), the Sensex has delivered positive returns. In these twenty-one years of positive returns, in the majority of the years (thirteen), the Sensex had given returns between 0 per cent and 30 per cent per annum.

Being a businesswoman herself, Devika now asked Vishnu whether the stability and the consistency of Marcellus’s CCP came at the cost of lower returns during bull markets. She had a hazy recollection of her professor from business school shouting in a lecture directed at MBA students that high-quality companies like Asian Paints and HDFC Bank give lower returns when the economy booms and the markets roar. Vishnu now showed her another couple of charts which underscored the fallacy of such theories emanating from business schools located in the western hemisphere.