The similarity between cricket and investing is worth looking at after the world cup 2011 which India won. In both of them fortunes change in short term but patience is always rewarded in long term.
Cricket is a game of patience and the team that wins the game is the one that practices patience on and off the field. We have seen this in world cup final. We have seen this in India Pakistan semi-finals and I am sure we will see this in many matches that are going to come.
The final match between India and Sri Lanka was an exciting one. We can draw many lessons from it for investing world.
Lesson 1: The market will beat you sometimes, even if you are the greatest investor in the world.
No matter how smart you are, no matter how well you understand the market, and no matter how brilliantly you select the stocks for investment, there will be times when you will not know what is making you lose on your investment. There will be times when forces beyond your control will make decisions for you. Srilanka was 212 in 45 overs and it ended up making 274 in 50 overs. It made 62 runs in last 5 overs. This happened despite the excellent performance India displayed from the beginning. This shows you will not understand sometimes why things go against you despite the best analysis you have done on your stocks.
Lesson 2: Your stars may perform badly sometimes.
How many times we have bought a stock of a great company but they did not perform sometimes. Does ITC provide good returns every year? The answer is certainly no. The stars may also fall down sometimes. Sachin and Sehwag, the two most accomplished batsmen were out after a small start. It seemed everything was lost when these two star performers were out by 7th over and 31 runs. In fact many people swiched off their TV and went about doing their regular work. However, things changed and the rest, as they say, is history.
Lesson 3: Don’t doubt once you make your decision as your selection may surprise you
Once we have decided upon a stock after due diligence on financials and annual reports, we should have faith in the company. There may be times when the returns do not seem to come soon. However, losing patience and selling them can be a bad idea. The young ones in team India Virat Kohli and Gautam Gambhi played great for 3rd wicket. Virat’s 35 runs in 49 balls and Gambhir’s performance at the crucial stage did the odds in favour of India. Their partnership of 83 runs was crucial in tilting the balance towards India. Frankly speaking nobody expected anything after Sachin was out.
Lesson 4: Patience pays big… it just takes some time
Warren Buffet, Peter Lynch, Benjamin Graham are some of the names in value investing known all over the world for their patience. Back home, big bull Rakesh Jhunjhunwala is known to keep stocks for years. These decisions require extreme level of patience and strong faith in one’s decision. Indian captain MS Dhoni is known as captain cool. His patience even on the face of adversity holds a lesson for all investors. Many investors panic when things go wrong and sell at loss only to regret later when the market bounces back and their stocks scale new highs in prices.
Lesson 5: Asset allocation matters
Equity is sexy. The risk associated with it, the daily fluctuation of prices, green and red points and charts on television screen all look so inviting. The problems with the sexy things are that they do not always perform as per your expectation. On the other hand, bonds are dull, predictable, and low risk instruments. However, bonds deliver consistent returns every time.
Similarly in cricket, we tend to adore batsmen (equity) and don’t care much about bowlers (bonds). The fact of the matter is both are important to have an optimal portfolio. Too much of equity will be exposed to high fluctuation in fortune just like a mistake from batsman’s part will cause much fluctuation in the team’s performance. On the other hand, a good bond will perform largely well even if it gives less or no returns sometimes just like a good bowler may give few extra runs in some overs but overall the bowler will be consistent.
Finally, a successful investor should be like Mahendra Singh Dhoni, cool tempered when the stocks do not perform as your expectation, change strategy when a sector has changed its dynamics, change allocation when the conventional allocation no more works, and walk the talk when everybody doubts his decision. Cricket has many lessons for investors and this is something that a cricket crazy county can learn from cricket.