Between 2001 and 2014, Nick Sleep’s Nomad Investment Partnership returned 921%, against 117% for the MSCI World Index. That is roughly ten times investor’s money, or about 20% a year. He rarely held more than ten positions, and at times his top three made up more than half the portfolio. In his letters to partners he wrote that the trick is to recognise the sources of enduring business success, get in early, and “own enough to make a difference.”
Hold on to that last part.
Some time back I compared my mutual funds with the Nifty 50. Five funds, roughly 20% in each. Sounds good, right?
Then I looked at what those funds actually hold. Around 500 stocks, and the largest single holding was about 3% of my equity. Very safe. But I own so little of any one idea that even a big winner barely moves my portfolio. I had effectively built the index and added fees on top.
Here is the math behind that.
| 100 stocks at 1% each | 10 stocks at 10% each | |
| One stock rises 10× | +9% | +90% |
| One stock goes to zero | −1% | −10% |
This assumes everything else stays flat, so it is an illustration, not a forecast. Your position size decides how much any idea matters. Diversification shrinks the winners and the losers by the same factor.
What I feel is, there are only two ways to beat the index. Own things outside it, or own more of the right things inside it.
For the second, I like Mohnish Pabrai’s 10×10 idea: ten of the best stories you can find, about 10% each, across a few industries and geographies. That is plenty of diversification. He looks for businesses with high returns and low uncertainty, the “heads I win, tails I don’t lose much” idea.
I see an equity investor’s journey in three stages. Here is what each one looks like in practice.
| Stage | What the equity portfolio looks like | You move to the next stage when |
| Learn | Broad funds, index or active based on your goals, holding hundreds of stocks between them | You have sat through a 20–30% fall without selling, and you can explain what your funds actually hold |
| Concentrate | About ten of your best ideas at about 10% each, through direct stocks or focused funds, across a few industries and geographies | Your equity pot is large enough that a 30–40% fall would hurt your plans, or you are a few years from needing the money |
| Preserve | Fewer big bets. The money moves back into broad index funds and a wider spread of holdings | You review this every few years, and again whenever your needs change |
Diversification feels safe, and while you are learning it is the right call. But safe and growing are two different things. Open the factsheets of the funds you own and look at your biggest holding. If a big winner there would barely move your portfolio, you have built the index with fees on top. Own that choice on purpose, or own enough of your best ideas to make a difference.
General education, not investment advice. I am not a SEBI registered adviser. Please do your own research or speak to a registered professional.