May 2019 was an action packed month for India as two of India’s three biggest obsessions (Politics, Cricket and Bollywood) kept everyone hooked to their television sets and smart phones for latest updates and live action. While the election campaign and results kept everyone interested during the first half of the month, the Cricket World Cup which commenced exactly a week after the Lok Sabha Election Results did grab a lot of eyeballs over this month. ICC Cricket World Cup—Cricket’s quadrennial 50-over event—is the most coveted prize in the world of cricket and its popularity across countries, especially in the Indian sub-continent, is anything but surprising.
While there is nothing wrong in spending many hours following the World Cup and boisterously supporting the India Cricket Team in its bid to win its third World Cup, there is not much that we stand to gain personally, beyond just entertainment. In a cricket crazy nation such as ours, this statement is bound to raise a few eyebrows and possibly some voices too. All said and done, Cricket unites Indians better than any religion. Now that we have made peace with the fact that Cricket is more of a religion than a sport in India and we certainly don’t intend to commit any blasphemy here, how about using Cricket to grow our wealth? No, we aren’t speaking about purchasing a stake in an IPL team. What we can do is to draw parallels between various facets of Cricket and Investing to grow our wealth over the long term.
Drawing common threads
First things first—Tossing the coin and weather conditions. What’s the common thread that binds the two? It is the fact that players have no control over these factors. Likewise, as an investor, you would come across many global and domestic factors (Geo-political, Economic etc.) that are beyond your control but impact your portfolio nonetheless. Cricket teams that have tasted success consistently are those with players capable of performing in different playing conditions, possess the right team composition and equally strong batting and bowling units so that they are agnostic to uncertainties around the toss and playing conditions. As an investor, asset allocation in your portfolio is as critical as the securities you choose. The right balance among equity, debt and gold, coupled with adequate sectoral diversification is necessary to cushion your portfolio from market shocks. Just as having nine outstanding batsmen isn’t going to win matches for the team without a potent bowling attack, a concentrated portfolio with similar companies is going to be susceptible to capital erosion more often than not.
Can the best and largest talent pool in the country win the World Cup on its own? While a talent pool is necessary, identifying and selecting the right players are as critical. Further, team selection is not merely driven by a few good performances. Selectors keep an eye for consistent performers with potential to perform in the future. A few good or bad performances don’t drive selection decisions. Likewise, investment decisions should not be driven by recent short-term performance but should be based on strong track record and potential to perform in the future.
Captain leads from the front
Unlike any other sport, the captain has a huge role to play in Cricket. From Clive Lloyd, Kapil Dev and Alan Border in the ‘70s and ‘80s to the likes of Imran Khan, Arjuna Ranatunga and Steve Waugh in ‘90s, and Ponting and Dhoni in recent times, World Cup winning captains have been strong personalities who led from the front. A captain in cricket needs to have foresight, good temperament, flexibility and patience among other attributes to marshal his resources well. Likewise, an investor needs to possess these very attributes to grow his wealth over the long term.
A strong start and a consistent scoring rate are necessary to set the tempo for a winning score. A wobbly start to an innings increases the required run rate towards the end of a run chase. This induces rash shot selection and loss of wickets, which invariably make it a deeper hole to climb out of. Likewise, most people turn a blind eye to their investment goals at the beginning of their careers. By the time they realize the criticality of saving and investing, it’s a tad too late. To make up for the lost time, investors end up choosing risky assets without considering their risk appetite, time horizon and end in financial doldrums. The only way to avoid this predicament is to start investing early, continuing regularly and staying put.
Last but not the least, bowlers and batsman have to be patient. There are times when a batsman may not get off to a flying start but would have to settle down at the crease before playing big shots against loose deliveries. Bowlers too may end up getting hit for runs off good deliveries but get back into the game by sticking to their line and length. Investors too need to be patient and stick to their investment plan and focus on long-term wealth creation in spite of short-term market volatility.
Parallels with the world of investing are not limited to cricket alone and can be seen across various aspects of our day-to-day life. One can use such analogies to adopt mindful investing strategies and create wealth over the long term.
(The writer is Senior Vice President & Head – Products & Marketing, HDFC Asset Management. The views expressed are the writer’s and not necessarily those of HDFC Asset Management Company)