Games have always been an essential part of our lives. Be it the Olympics, UEFA, or Cricket. Tokyo Olympics 2020 is the talk of the town. Indian Olympic Team is doing wonders, and our Indian Hockey Team, today defeated Germany to win an Olympic medal after 41 Years. 

Sports are essential – not only for physical fitness (which is very important) but also for imparting some key life lessons. It teaches how to be a team player, sportsmanship, discipline and the importance of consistency.

Stop staring at your portfolio. When my inner sports enthusiasts meet the investor in me, I cannot help but observe simple principles common to both. In my young days, I would frantically scrutinize every game, player, and strategy. Similarly, in my initial days of investing, I would track my investment portfolio day in and day out in an attempt to time the market. Often, the fervent fan and a biased investor overpowered my rational thinking. The logic was left far behind, especially when faced with a loss. 

Know your time horizon. For any sportsman, the objective is to win. For any investor, the aim is to maximize return and attain financial goals. When players are picked up for a team – their past and current performance, track record, etc., are studied carefully. A choice is made based on the requirements of the different formats in cricket – ODI, T 20, or test match.  Time horizon is critical. Similarly, some asset classes are best suited for a short time horizon and some long-term.

Diversify according to your goals. A look at our cricket team or football team would also underscore the importance of diversification in our investment portfolio. Each player has a role – its unique role to play in the game. (Remember the 2011 movie – Moneyball – how a baseball team is assembled using a computer-generated analysis to acquire new players – Watch it on Netflix if you have missed it). Similarly, the debt portion of our investment portfolio is for safety and capital protection; equity is for growth; gold is for hedging; cash and liquid investment is for liquidity. Solely relying on fixed income instruments will not give the best result in times of growth but when the market corrects, it is the debt instruments that provide a cushion to the portfolio.

Mental strength is important. A gymnast wins not only because of the strenuous physical training but also because of tremendous control over the mind and flexible body.  One needs to be mentally strong when making investment decisions and not be swayed by emotions and biases. When an athlete runs, it’s the speed, endurance, and patience that results in success. Like a marathon, investments often are meant for the long term, which requires patience, and often the investor gives up just before the finishing line. Reckless batting is never desirable – losing wickets could translate into losing the match too.  Similarly, poor investment decisions might result in losses and even capital erosion. One should always make an investment decision based on thorough analysis.

Be flexible. A player who can make changes in the playing style as per the changed format is the one who emerges victorious. Similarly, an investor needs to be flexible as per different financial goals and make asset classes choice. Changing economic and financial environment warrants an investor to review the decisions made in the past and be flexible in asset allocation. A good player should have the ability to hit sixes and consistent running between the wickets to win the game. A single strategy is not necessarily the best way – neither for a sports player nor the investor. One needs to be flexible in changing the game and making choices according to different time horizons. 

Continue that monthly SIP/ STP. The ability to finish the race is vital. The winner will be the one who can withstand unfavourable situations and crosses the rocky/ bumpy road leading to the finish line with composure and not panic. A winner investor will be the one who is not going to lose sight of the financial goals during the market correction or heightened uncertainty (like the one we are facing in the COVID times).

“The intelligent investor is a realist who sells to optimists and buys from pessimists.”

― Benjamin Graham, The Intelligent Investor

Start early. In the game of cricket, an early catch often influences the final match result. On the same lines, an early start to investing also bears a considerable influence on the final corpus accumulated and how soon you attain your financial goal. An early start provides the scarcest resource – TIME (to see the power of Compounding, the 8th wonder)

Know your game well. Understanding the game – rules, strategies, environment, and participants will always work in your favour. Like a true fan, don’t despise the game but live to watch it win

So, my dear readers, let’s not be a sports fan who discards idol with every game and creates a new one. Just like one game doesn’t define the player, one market slump cannot determine the credibility of the investment decision. It is over a period of time when the true character is shown. Do analyze long term performance, including at least one market downturn. Look for consistency in its performance and vis a vis peer. Only invest if it aligns with your long-term financial goal, not just because it is popular. 

Congratulations to our Hockey Team and all of us. Cheers!!

Best Regards

 
Dr. Tarunika Jain Agarwal Ph.D.

Alpha Research