Financial management and Cricket.
Cricket and financial activities have many similarities. They are things which go hand in hand. Both these activities aim at achieving goals in a predetermined time. Both have their ups and downs and both have to follow a strategy in order to achieve a goal. There are several things which we can learn from cricket in order to become a good investor.
1. An early start always pays to achieve a high score.
Just like cricket has different rules and regulation for different kinds and formats of the game financial decisions too for different financial instruments need to be regulated in a different way. However, the goal remains the same that is to achieve maximum in the first 15 overs. Just like in cricket scoring maximum in the first 15 overs helps you a lot in achieving the target similarly while investing if your investment earns you maximum returns its will not only give you cushion but also help you with regular growth. The initial period of any investment is like a precious wicket, hence it is very important to make the most when you purchase a new investment. Like losing a wicket at the beginning of the match cost a lot. If that wicket is able to score a huge score of 100 plus in the first 15 overs then it eases the situation and even if you tend to lose a wicket, you play with ease, it’s not that difficult to achieve a high score at the end of 50 overs. This exactly happens with investment; if a security is able to give returns at the beginning of its life it helps you build confidence and also make returns easier. For instance if you invest Rs 10,000 for 10 years which earns you Rs 4,000 then you can invest all of Rs 14 000 for another 10 years, this will not only provide with you more addition to your corpus but will also guarantee you growth of your investment. This means that the return which you got that was Rs 4,000 acts as an extra saving and hence greater investment.
2. All members have their importance in the team.
Why it is always advisable to build a portfolio which is a right mix of all kind of investments. This can be explained with an example from cricket. Just like a cricket team has a right mix of bowlers, batsmen, fielders and a wicketkeeper who have an important place and a role to play in the match, similarly in case of a portfolio all kind of investments which have different characteristics have their own importance. Imagine a cricket team having only batsman and no bowler. In such a case this kind of cricket team will end up making a huge score but when it come to bowling they won’t have a single bowler, so what would be the advantage of such a big score which will be chased. On the other hand imagine a cricket team having only bowlers and no batsman, in this case they will not have a big score to chase but they will have no batsman who would chase the score. Therefore it is important to have a portfolio which has a right mix of equity and debt that does well in both short term as well as long term. Therefore after assessing the requirement an investor must have a team of mutual funds, direct equity, ULIPs, Insurance, PPF, other debt products and of course cash. A correct mix of both long term as well as short term investment is required to attain maximum benefit and to avoid risk.
3. You can’t always aim for the boundary, you need to be consistent.
Cricket is a game of thrill and excitement where the maximum enjoyment comes when a batsman hits a six or a four, but such shots come with an equal amount of risk. There is a risk of losing a wicket. Therefore, in order to sustain a high score and to be on the wicket till the last ball one has to be very careful with his 1s and 2s. In fact a consistent batting order which scores 1s and 2s wins the game, rather than a couple of 4s and 6s and the player gets bowled out. Batsman has to concentrate on his 1s and 2s and hit a boundary once in an over or when the opportunity is right.Similarly financial life is also faced with ups and downs, where the market may be in boom and slump in a particular year. Many investors experienced a 50-100 % returns in the year 2010-2011 and suffered losses in the year 2008.There are times that are more beneficial and there are times which make your investment go down in the dumps, in such a caseAlways look for average returns so that you can balance both upturns as well as downturns in life.Don’t get disheartened if there are slow phases in life, catch up when the market is growing, like in cricket hit a six when the bowler is not doing well and exercise caution when the bowler is in full swing.A very good example of it is the World Cup finals between India and Sri Lanka where Indians maintained and let the runs come easy and at the same time also didn’t let the wickets go. And when they realised that they had wickets in hand they took full advantage of this and played some wonderful shots. Therefore they would be some bad times and some good times. A smart investor will balance between bad and good times and average out his earnings.
4. When things go wrong, rethink your strategy.
Things can go wrong at every walk in life, whether it is cricket or finances. In case of cricket, a team can suddenly lose a couple of wickets, can face low run rate or pressure because of great bowling and fielding by the opponent team. This can be a very difficult phase and many times the spectators often feel that the game is over. But it may not be so, because there can be a sudden turn. If the team is headed by a calm and smart captain tables can turn. All you need is to focus, remain patient and think wisely. A situation which is getting out of control can also come back to good state if a good strategy is followed. Some amount of calculated risk has to be taken; if this risk is taken with precision then a lost match can also be won.Similarly in case of finances an investor may suffer loss due to state of the economy, change in taxation rules or merely wrong choice of investment tools. Many investments may not reap healthy and good returns. This may disrupt your goal and also make you face financial challenges but this does not mean that it’s the end of the world. Some professional guidance and expert help can also help getting you back on track. By becoming more alert and by evaluation of financial strategy things can be taken control of and gradually regain financial health.
This is initiative of Financial Literacy Agenda For Mass Empowerment.
Sincerely yours,
PRASANNA KUMAR NEVE
