The great paradox of investing is that markets are not democratic engines of prosperity; they are aristocracies of outliers. Returns in markets follow a power-law distribution, not a bell curve. A tiny minority of businesses generate the compounding that defines the long arc of wealth. Scarcity, after all, never goes out of fashion.

Hendrik Bessembinder’s landmark study, Do Stocks Outperform Treasury Bills?, quantified this uncomfortable reality. Examining every U.S. stock from 1926 to 2016, he found that only 42.6% ever produced lifetime returns above one-month Treasury bills — and fewer than 3% of companies globally account for nearly all net shareholder gains. Just 4% of U.S. stocks generated all the market’s excess returns over T-bills; a mere 86 created half of that wealth.

Indexing works because it captures those outliers by design. Active investing works only if you can identify them before the index does.

The Narrow Path to Compounding

If only four percent of companies generate all excess wealth, the active investor’s task becomes clear: to identify a few truly great businesses and hold them long enough for compounding to reveal its quiet, asymmetric power. The goal is not to own everything, but to own what endures — the enterprises that outlast cycles, erode competition, and let time do the heavy lifting.

Over the years I have learnt that most businesses make sense for society — they create jobs, serve customers and progress — but very few make sense for long-term investors. Once wages, taxes, and reinvestment are paid, most generate returns barely above their cost of capital. Capitalism, for all its virtues, breeds competition — and competition erodes returns. Time, in a great business, acts as compound interest on dominance.

But to play that game requires doing what most can’t: ignoring the crowd.

The Wrong Measure of Success

Much of the investment industry is not designed to think this way. The dominant culture in money management today is not stewardship but asset gathering. Most firms measure success by assets under management, as if more capital implies more wisdom. It’s the wrong metric. It cultivates the DNA of a salesperson, not an investor — a culture that optimizes for fee growth rather than intrinsic value. When pride is measured in assets, the product becomes assets, not returns. Portfolios grow more diversified, less differentiated, and more benchmark-aware. Over time, it’s no surprise that few truly beat the benchmark.

Learning to Unlearn

When I first started in the business two decades ago, I did what most young investors are taught to do — diversify. The results were as expected — steady, respectable, but rarely exceptional. Then, early in my journey, I noticed a pattern: a few investments were doing all the heavy lifting.

Without intending to, I had stumbled upon the truth Bessembinder would later prove — that a small minority of companies create the vast majority of wealth. I remember thinking, almost instinctively: if this pattern is so persistent, why not build around it? Why not focus on the few that truly matter?

That realization — to concentrate rather than diversify, to study the outliers rather than the averages — became the foundation of my investing philosophy. Over time, it taught me that the greatest risk in investing is not concentration, but mediocrity.

The Moat as Compass

Since then, I’ve begun not with forecasts or valuation screens, but with a single question: Does this business possess a moat that can turn time into a tailwind? Growth alone means nothing if it is unprotected; the world is full of profitless expansion. What endures are moats that make a business hard to compete with and harder to replace. And even there, it’s not the size of the moat that matters most, but whether it’s widening or narrowing.

That distinction — subtle but vital — offers the best clue to enduring growth. Because in the end, it is enduring growth, not fast growth, that is the rarest asset in investing. Growth is easy to find; durability isn’t.

The best businesses aren’t the fastest-growing; they’re the hardest to kill. Moats come in many forms—network effects, switching costs, irreplaceable assets, or intellectual property that borders on monopoly—but the effect is the same: they keep competitors out, pricing power in, and customers loyal.

The Arithmetic of Focus

Most investors look for what to buy; I spend more time refining what to avoid. Bad industries eventually humble even good managers. So we wait. Capital, when patient, earns the right to be selective. We focus on a narrow investable universe — perhaps 100-150 truly high-quality companies globally, 20-25 in India. That number comforts me. A narrow funnel forces deeper conviction.

We look for businesses that widen their moat every year they exist — a company whose customers grow more dependent the longer they use it, a network that gains strength with every new participant, a brand that reinforces itself through habit and trust, or an asset whose replacement cost makes competition irrational.

I find more safety owning eight great businesses I understand intimately than thirty I merely like. The arithmetic of compounding punishes the scattered mind and rewards the focused one.

Valuation, to me, is the final gate, never the first. A business that compounds intrinsic value for decades will, in hindsight, always have seemed cheap. Conversely, a statistically cheap stock without durability will destroy capital slowly but surely. Our best investments came when we paid fairly for enduring growth at high returns on capital. Over time, the compounding of quality overwhelms the arithmetic of cheapness.

Time as Arbitrage

Time, more than intellect, is the edge most investors squander. The average holding period of a U.S. stock today is under a year. Ours exceeds eight. We think in decades, not quarters, because the physics of compounding requires time. Long-termism is our structural advantage precisely because the world has grown allergic to it. In markets where most participants trade attention rather than conviction, time itself becomes an arbitrage. Buffett said the stock market is “a mechanism for transferring wealth from the impatient to the patient.” Patience, then, is both edge and identity.

This approach may sound simple, but as Munger said, “It is not supposed to be easy. Anyone who finds it easy is stupid.” It demands patience in a world optimized for speed, conviction in a world addicted to consensus, and restraint in a world that rewards motion.

The Closing Reflection

The world will keep changing; human nature won’t. People will still overtrade, overborrow, and overreact. Yet the arithmetic of wealth creation remains brutally simple: most investments will fail, which is precisely what makes compounding so powerful for the disciplined few. The decade ahead will not reward leverage, fashion, or forecasting. It will reward those who think independently, act patiently, and hold courageously.

Because wealth, like reputation, is built slowly — and the world needs more stewards, not speculators. I prefer compounding to trading, simplicity to cleverness, and arithmetic to storytelling. Compounding doesn’t shout; it whispers. It works slowly, invisibly, and then all at once — creating real wealth, quietly but powerfully.

Shiv Puri

Founder and Managing Director, TVF Capital
Chairman, Vesta Global