India Vs Pakistan Champions Trophy 2017 Final was a much hyped cricket game in recent times. Many people were sure of India’s win & written off Pakistan without a bowl being bowled! The result was very different & it ended up in a one sided contest. A loss is a complete loss if we don’t learn anything from it. I am sure team India must have taken notes of their mistakes but as investors there were enough lessons for us as well.
1. Strictly avoid no balls: Bumrah took wicket but on a no ball and it was where the match slipped away from India. In investing, a no ball event will be akin to a situation where investor puts his money into speculation fueled stocks ignoring his investment discipline. Such hype based investing is a sign of process breakdown and should be avoided all the time, whether you get a wicket (multibagger) or not.
2. Avoid too much dependency on a few stocks: Ashwin & Kohli were India’s senior most players & expected to turn up on such a big match but they failed and India’s dependency on them was exposed. As investors, our portfolio should be diversified enough & not heavily biased towards any particular stock or sector. Any bad development in your top bet can wipe out a significant portion of your portfolio. Here, we are not advising you to distribute your percentage allocation equally in all stocks since we strongly believe that better bets should get more money but your portfolio should not be overtly dependent on a few stocks. The percentage difference between your top bet & average bet should not be very huge. For example, a portfolio of 10 lakhs should not have it’s top bets having 4 lakhs while next biggest bet at 50k.
3. Invest more in performing stocks: Pandya should have got more balls to play since he was performing well and could have created a difference in India’s total. If a stock is performing well, you must allocate more money in it & average up your purchase price as written earlier in a different post (click here to read that post). Very often we see an investor having 10x return in a particular stock but he never invested more in it. Hence overall returns remain average. This happens due to our anchor bias. Anchor bias is a common human tendency to rely too heavily on the first piece of information offered (the “anchor“) when making decisions. So if you buy a stock at Rs 10, you don’t want to invest more if it reaches Rs 100 thinking it is overvalued & may fall down.
4. It’s a 50 over game, never loose patience & persistence: After missed run out chances & wicket on no ball, India went on to play defensively and gave away early bowling advantage to the opposition. In investment world, you will have to deal with missed multibagger opportunities or wrong investment decisions. We must understand that what is done is done and we can’t change the past. Our only option is to take next best step & keep moving. Investing is not for a few months, it’s a game best played over longer periods. Repenting on missed opportunities will only unnerve and force you to commit errors. Unfortunately, these days financial dailies are full of mutibagger news & how you have been missing multibaggers again & again. They make good stories & anxious investors read such news promptly. Always remember we have finite money & time in hand & you can not invest in each & every stock. So be content with selected group of stocks with proven record and keep taking right steps with patience & persistence. These two qualities will separate you from having average or great returns.
Only very few people have managed huge returns from all those fancy stories since it’s very hard to identify a multibagger & even if you got one, most people will jump out with nominal profits before it truly becomes a multibagger. There was an analysis published by HDFC Equity fund. This fund was launched in Jan 1995 & since then it has given 57 times returns. Over 7 lakh investors have invested in this fund over the years & only ~5000 investor stayed with this fund to enjoy 57x returns. This is hardly 0.7% of all investors. So next time you read multibagger stories, don’t fret because you are not alone and it’s perfectly normal 🙂
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