Top 10 Investment Lessons from IPL 20-20

Sport can teach us a lot about life. Here are 10 things we have learned about investing from the IPL T20 tournament.

1. Start early: T20 does not reward late starters. Teams must start putting runs early in their innings, otherwise it can get too late and the surviving batsmen are always playing catch up.

Similarly, we must also start investing and saving early. This allows us to benefit from compounding of capital, as well as allows us to “keep the scoreboard ticking” in order to move closer to our financial goals.

Additionally, we have seen how batting sides take advantage of fielding restrictions early in the innings. Similarly, early in our innings during our youth we must also take advantage of the freedom to do things that we might not be able to later in life. One of these freedoms is to start building our financial resources when we have very few other financial obligations

2. Risk and Reward tradeoff: T20 is all about taking high risks and ensuring that the team gets rewarded for it – whether its aggressive opening batsmen, or field placing or trying out new bowlers. Finance is all about a tradeoff between risk and reward – you just cannot get rewards without taking on risk, just like a batsman faces the risk of being caught at the boundary if he is trying to hit a six.

If we chase high returns, we must be ready to take on the accompanying risks. Also, just like not every ball can be hit for a boundary, not every investment will turn out to be a goldmine. Sometimes singles are equally important to keep the scoreboard ticking

3. Be ready for the unexpected: In case of rain or weather related delays, the Duckworth-Lewis method gets used and can lead to unexpected outcomes. A team must be prepared for the unexpected and the only way is through having already scored enough runs whatever the stage of the game.

Similarly, our investments must also always be ready to deal with unexpected situations that life might throw at us. We must have enough of a margin of safety to be able to protect ourselves against the proverbial rainy days that we might face in life

4. Strategic break: Strategic breaks help teams to review their progress and plan for the remaining overs. Similarly, as individuals we too must do the same. Unless we regularly review how well our finances our doing and how we must tackle the challenges that the future will throw our way, we might not end up meeting our targets

5. Balance: Just like a T20 team needs the right balance of big hitters, anchors and effective bowlers, our investment portfolio also needs the right balance of investments. Too much of growth or aggressive funds, without a stable foundation of high quality diversified large cap funds, might end up with too much imbalance that can hurt our portfolio. Our investments must be diversified across sectors and different assets, and not be concentrated in any one area

6. One bad over: One bad over can change the direction of a game. If a team does not have enough runs on the board (if you are batting) or enough wickets already (if you are bowling) a bad over can really upset the rhythm and momentum. Sometimes in life one also goes through a “bad over” which could take the form of a job loss, or serious injury or illness

If we do not have an adequate safety net then our personal financial situation can be beyond repair. Again for this reason we must get into the habit of investing and saving regularly so that we are prepared for a bad patch if it were to arise

7. Consistency gets rewarded: The Purple cap or Orange cap are given to the best performing bowler or batsman respectively, a reward for their consistent performance. We too must strive to get this Purple or Orange cap when it comes to our personal finances.

What matters most is that we have consistent performance over a long period of time. There is no point in investing in a fund that is really hot in one year, but a poor performer at all other times. After all, a player who bats or bowls well in one match but is very poor in all other matches is not going to survive too long

8. Coaching helps: T20 teams have got specialist coaches for batting, bowling, fielding and for the overall team. During the month long tournament, the IPL has shown us that some guidance and direction from experts, especially an objective view from the outside, can over time help improve a team’s performance and facilitate meeting a team’s goals.

Similarly, our investments can also benefit from some guidance and expertise, especially to get a check on whether we are doing the right things to meet our financial goals. All of us need some coaching that we are not making careless mistakes that might hurt us later on in life

9. Distractions can be entertaining but ultimately the score matters: T20 is highly entertaining not only on the pitch but also because of all the music and dancing. But, ultimately a team wins or loses on the back of the score that it has made.

Similarly, in investing distractions like the hottest investments or the fads of the month will come and go - what matters is that our “investment scorecard” shows a healthy average. We must focus on what matters and ignore the noise and distractions in the market

10. Winning attitude: The IPL has shown that even young players with lesser talent or resources than the great cricketers can do well if they bring the right attitude to the pitch. Similarly, investing is not just about being rich or already having lots of money.

We can start with few resources and little experience but over time make a fortune for ourselves through a positive attitude and willingness to learn from our mistakes.

We should not get disheartened if one of our investments has lost money. Just like a young cricketer who believes in himself, we should believe in what we have invested in and stick it out. If we have put in the right kind of preparation, we will also come out the winner over the long run

Message forwarded by Mr.D.Satheesh Kumar,
Cluster Head : Reliance Capital Asset Management Ltd, Madurai