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This is one of my friend's ( Pavan.K) views on the rocky stock market. He took a cue from India's T20 loss and summed it up in an exhaustive way.
Dear All,
SO after INDIA's Twenty20 (T20) World Cup debacle, and a billion fans are crying about it !!! Let us see what we, as investors, can learn from this:
1. Past perfect, future tense
In the T20 format, it is far more difficult to predict than in other longer formats. In the equity markets too, the shorter the time duration, the more difficult it is to predict. Just as how no fund manager knew at 21,000 sensex that the market can come down to 9,000, even those who claimed that they could predict, could never have predicted that from 8,700 market will move up 80 per cent in such a short time.
Lesson: Don't time the market. Invest regularly in a disciplined manner .
2. Strategy matters
Mahendra Singh Dhoni in 2007 was playing to win. In the year 2009 he was playing 'not to lose'. This made him very defensive.
Moreover, the top batsman had a limitation, they could not play the rising ball in England. The bowlers were not effective either.
Anil Kumble, Sachin Tendulkar were all available in England. The selection was poor.
Strategic mistakes in investing include
- too many funds
- choosing sectoral funds
- paying income tax on equity funds (by choosing a balance fund with 50% equity)
- not doing a SIP (systematic investment plan)
- investing a debt for a long term
- not taking adequate life insurance, etc.
These strategic mistakes hurt in the long run.
Lesson: Stick to the investing basics.
3. Never reward mistakes
Most actions are judged on outcomes, not on efforts. When Joginder singh was given the ball to bowl the last over there was no logic, but the result was stunning. So we called Dhoni a strategist. Now selecting Jadeja resulted in a loss. So we call him a failure.
Fund managers who sat on cash from 21,000 to 10,000 looked smart. That was a mistake we lauded. We called their performance as a ‘1st quartile performance’. However, when they sat on cash at 8,700 index waiting for the index to go to 6,500, they lost out. So the same heroes look like zeros!
Lesson: If you made a mistake, accept it and don't repeat it. It may have worked once but not always.
4. Overconfidence kills
Main causes of India’s failure were overconfidence, too many changes in the team, and playing defensive cricket.
Most retail investors struggle about which fund to keep and which to remove. The very simple thing to do is choose one fund and monitor progress. Also the need to transact is so high for the retail investor, that it hurts.
The same hurt you even while investing. Overconfidence (my techniques of last year will work this year), too many transactions, and keeping all your money in debt funds for 20 years.
Lesson: Be patient while investing which most of us are averse to !!
5. Sharpen your skills
Even if you are a good tree cutter you need to take time to sharpen the axe. If you do not take time to think, rest, relax the muscles, how will you recover to play again? We over did our playing. What was the reason that we had a jaded team? Not sure. Many mutual funds tend to relax and rest on their past laurels. Look at their recent performance - it is really jaded!
Lesson: Keep learning
So invest wisely at regular intervals in various asset class.
This is one of my friend's ( Pavan.K) views on the rocky stock market. He took a cue from India's T20 loss and summed it up in an exhaustive way.
Dear All,
SO after INDIA's Twenty20 (T20) World Cup debacle, and a billion fans are crying about it !!! Let us see what we, as investors, can learn from this:
1. Past perfect, future tense
In the T20 format, it is far more difficult to predict than in other longer formats. In the equity markets too, the shorter the time duration, the more difficult it is to predict. Just as how no fund manager knew at 21,000 sensex that the market can come down to 9,000, even those who claimed that they could predict, could never have predicted that from 8,700 market will move up 80 per cent in such a short time.
Lesson: Don't time the market. Invest regularly in a disciplined manner .
2. Strategy matters
Mahendra Singh Dhoni in 2007 was playing to win. In the year 2009 he was playing 'not to lose'. This made him very defensive.
Moreover, the top batsman had a limitation, they could not play the rising ball in England. The bowlers were not effective either.
Anil Kumble, Sachin Tendulkar were all available in England. The selection was poor.
Strategic mistakes in investing include
- too many funds
- choosing sectoral funds
- paying income tax on equity funds (by choosing a balance fund with 50% equity)
- not doing a SIP (systematic investment plan)
- investing a debt for a long term
- not taking adequate life insurance, etc.
These strategic mistakes hurt in the long run.
Lesson: Stick to the investing basics.
3. Never reward mistakes
Most actions are judged on outcomes, not on efforts. When Joginder singh was given the ball to bowl the last over there was no logic, but the result was stunning. So we called Dhoni a strategist. Now selecting Jadeja resulted in a loss. So we call him a failure.
Fund managers who sat on cash from 21,000 to 10,000 looked smart. That was a mistake we lauded. We called their performance as a ‘1st quartile performance’. However, when they sat on cash at 8,700 index waiting for the index to go to 6,500, they lost out. So the same heroes look like zeros!
Lesson: If you made a mistake, accept it and don't repeat it. It may have worked once but not always.
4. Overconfidence kills
Main causes of India’s failure were overconfidence, too many changes in the team, and playing defensive cricket.
Most retail investors struggle about which fund to keep and which to remove. The very simple thing to do is choose one fund and monitor progress. Also the need to transact is so high for the retail investor, that it hurts.
The same hurt you even while investing. Overconfidence (my techniques of last year will work this year), too many transactions, and keeping all your money in debt funds for 20 years.
Lesson: Be patient while investing which most of us are averse to !!
5. Sharpen your skills
Even if you are a good tree cutter you need to take time to sharpen the axe. If you do not take time to think, rest, relax the muscles, how will you recover to play again? We over did our playing. What was the reason that we had a jaded team? Not sure. Many mutual funds tend to relax and rest on their past laurels. Look at their recent performance - it is really jaded!
Lesson: Keep learning
So invest wisely at regular intervals in various asset class.
Hehe! Brilliant comparison Actually it works! ur friend is a pro
ReplyDeleteSuperb one !
ReplyDelete