Lesson 05 — Long-term Investing & Compounding
Week 01 · Lesson 5 of 7 · Week 01 — Market Basics (India)
Compounding is when your money earns returns, and then those returns also earn returns over time. "Compounding ka magic time se hota hai, excitement se nahi....
The core idea
Compounding is when your money earns returns, and then those returns also earn returns over time.
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"Compounding ka magic time se hota hai, excitement se nahi."
Real numbers: why time wins
If you invest ₹1 lakh at 15% annual return (a well-run Indian equity portfolio):
| Years | Value | Total return |
|---|---|---|
| 5 | ₹2.0 L | 100% |
| 10 | ₹4.0 L | 300% |
| 15 | ₹8.1 L | 710% |
| 20 | ₹16.4 L | 1,540% |
| 25 | ₹32.9 L | 3,190% |
The last 5 years (Year 21–25) generate ₹16.5 L — more than the first 20 years combined.
Why long-term wins (behavior + business)
Long-term investing works best when:
- You own quality businesses
- You avoid big mistakes (wealth preservation)
- You give time for business growth to reflect in price
Long-term investor rule
Focus on process: business model, financial health, governance, and patience.
What to look for in a company (compounding angle)
| Signal | Good for compounding | Bad for compounding |
|---|---|---|
| ROE | Consistently > 15% | Volatile or declining |
| Reinvestment | Company reinvests profits at high returns | Pays out everything, no growth |
| Debt | Low D/E, survives downturns | Highly leveraged, fragile |
| Revenue CAGR (10yr) | Steady 12%+ growth | One-off spikes, no consistency |
| Promoter holding | Stable, no pledging | Declining or heavily pledged |
Visual: compounding needs time
On InvestingSamjho
Use the Screener with these beginner-friendly compounding filters:
- ROE > 15%
- Revenue growth > 10% (annual)
- Debt-to-equity < 0.5
These filters surface companies with the ingredients for long-term compounding.
Key takeaway
Compounding is about TIME × RATE × REINVESTMENT. Even 12–15% annual returns become massive over 20+ years. Your time horizon is your biggest edge — don't waste it on short-term trades.