We have completed our first year of deliberate and continuous investing. Beginning in December 2024, we started accumulating one of the businesses in our portfolio and continued buying through the market decline into March 2025, eventually allowing the position to reach a substantial—at one point complete—share of the portfolio.
Such concentration can appear imprudent at first glance. Concentration and risk are often treated as interchangeable, while diversification is commonly assumed to be inherently conservative. We believe this framing is incomplete.
Before deciding how widely to diversify capital, we think two questions must be answered clearly:
- What is the appropriate size of an investment relative to total capital?
- How quickly can capital be replenished in the event of a permanent loss?
On sizing
A review of our historical trades over the past several years revealed a consistent pattern. Even when individual investments performed well—occasionally doubling over a one- or two-year period—the impact on overall capital was minimal. The issue was not selection, but allocation.
Consider a simple illustration. An investor accumulates ₹1,00,000 over six months through salary savings. Following commonly given diversification advice, this capital is split across twenty businesses, resulting in an allocation of ₹5,000 per position. Even if one such investment compounds at an exceptional rate and doubles over three years, the absolute gain is ₹5,000. While directionally correct, the result is economically insignificant. For material progress to occur, either many positions must succeed simultaneously or time horizons must extend far longer.
Now consider committing the same ₹1,00,000 to a single, well-researched, high-conviction idea. The possibility of permanent loss exists and must be acknowledged. But the consequence of such a loss—in this example, six months of savings—is not fatal. If downside risk is limited and upside potential meaningful, concentration can be a rational response when starting capital is small and recoverable.
This logic does not scale indefinitely. When capital becomes substantial—when its loss would materially impair one’s life—concentration without diversification becomes irresponsible. At that stage, preservation takes precedence over acceleration. Risk must be evaluated not only by probability, but by consequence.
As Warren Buffett has often observed:
“Diversification is protection against ignorance. If you know how to analyse and value businesses, it is hard to justify owning thirty or forty stocks rather than putting more money into your best ideas.”
We agree with this view, with an important qualification. Concentration is not justified by conviction alone. It must be supported by understanding, valuation discipline, and the ability to recover from error.
Current positioning
At present, our capital is not concentrated in a single business but spread across three. Two positions represent substantial allocations, and we have recently initiated a third. We do not name specific businesses while purchases are ongoing.
We do not believe valuations in India are broadly cheap by any stretch of the imagination. Two of our current holdings were also not trading at obviously low valuations at the time of purchase. However, we believe they were acquired at fair prices relative to their long-term structural growth prospects, providing an adequate margin of safety.
We fully expect periods of drawdown in Indian equity markets. Should such opportunities arise, we are prepared to add to businesses we already own and understand well.
Our approach to concentration, diversification, and sizing will evolve as capital grows. The underlying principle, however, remains constant: capital allocation must reflect both opportunity and consequence.
Note: DECADAL. is not a SEBI-registered investment advisor. The content on this site represents personal views and is not investment advice.
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