Young Investor

What the World Cup taught us

P.Saravanan N.Sivasankaran | Updated on April 12, 2011

IW10_WORLDCUP2   -  K_R_DEEPAK+SEP+THE HINDU

Investment lessons to take back from Team India's thrilling victory.





The ICC World Cup 2011 has truly lived up to the expectations of the fans, what with Team India emerging winners. The tournament however has met expectations even in terms of entertainment besides satisfying the commercial objectives of the sponsors. Here are some takeaways from the tournament for the young investors:

Every Rupee Matters

Team India and Sri Lanka, which reached the finals, did so as they counted every single run for their victory by following the long-aged adage “singles win matches”. The same rule is applicable for investors too, to whom every single rupee should and would matter. Remember, the fundamental rule in investment says “with earning comes savings”. As any investment requires some considerable amount to start with, every investor is required to improve his earnings as much as possible.

Saving = Earning

The top rung teams were driven by the strong belief that “a run saved equals a run earned”. In the investment context, an investor primarily spends his earned money on two categories of expenses namely “Must Spend categories” and “Can Spend Categories”. While the first category is unavoidable expenses, the second one is certainly deferrable in nature. So, if an investor can minimise the “Can Spend expenses”, then he/she would be able to maximise savings and thereby maximise the investment corpus. It is opined that an investor should save a significant portion of (the golden rules says at least 40 per cent) one's disposable income on a regular basis.

Think before Investing

Every batsman, worth his class, would have thought twice before hitting the ball, as even one wrong stroke can lose him his wicket. Similarly, every bowler must have thought twice before bowling, especially during the critical overs. So, what does this mean? The players, be it bowlers or batsmen, need to do a thorough analysis of the opponent team, pitch, phase of the match, nature of the ball, age of the ball and other relevant factors that are key influencers in a match. Investors too need to do a thorough analysis on their profile, predominantly to determine risk appetite, the country's economic trends, industry scenarios, government policy, track record of the company and the investment amount before deciding to invest in a company or taking major investment decisions. Just like how the impact of a wrong shot / a wrong ball in the game of cricket can change the match on its head, a wrong investment decision too can prove to be a costly mistake.

Earlier the Better

Any team that plays well and gets top notch scores, is at a distinct advantage over its opponents. So is the case when a team manages to get a couple of wickets in the beginning itself. This is a definite confidence booster. In investments too, the earlier one starts the better it will be in terms of the returns one can reap in future. Money has time value, which means that the value of the money goes down as time passes by. So, those who start investing earlier get more benefits compared to those who start late.

Think long term

The winning teams play their every match with the end result in mind. They do not play just to win one match, but play to win the finals. This strategy requires clarity in terms of the goal of playing, which can be segregated into long-term, short-term and intermediate-term plans. Similarly, the game of investing requires the investors to have clear cut plans about their investment. The most important take away here is to “invest for long term”. The benefits in the long-term investment plans are superior to that of short-term plans primarily due to the “power of compounding” where the return from the earlier investments keeps earning returns.

The Golden Portfolio

Winning teams employ an optimal mix of bowlers, batsmen and all-rounders. Similarly, an investor can earn higher returns only by constructing an optimal portfolio. This means that, he/she must invest a part of the investment corpus in equity, mutual funds, gold or gold ETF, real estate, provident fund and fixed deposits.

There are no scientific formulas to arrive at the asset- wise proportion of investments. So, one has to work out the proportions based on the risk-return profile. But irrespective of the proportions, one reaps higher returns by investing in a portfolio of assets rather than confining it to a single investment avenue.

Do not follow the crowd

Winning teams do not follow either analysts' views or opponents' criticisms. It is the team captain, members and the selectors who are best placed to take such decisions.

Every investor is required to formulate his own investment strategy in order to reap higher yields from their investments.

Many a times, investors who blindly follow the analysts' recommendations burn their fingers.

So, doing proper homework prior to investing in a stock or any other asset is a prerequisite for successful investing. Though luck does play the extra inning for the winning team it can account for an insignificant percentage of the success of the champion.

Published on April 09, 2011

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