Ten Investment Lessons to Learn From
Cricket..
A fundtastic Game Investing lessons from cricket
An investor
education & awareness initiative by
Franklin Templeton
Mutual Fund.
by Franklin
Templeton Mutual Fund.
An investor
education and awareness initiative
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10 Investment lessons to learn from
cricket..
India is a cricket crazy nation and
with the world cup on in full swing, all plans revolve around this sport.
We realised that there are many
similarities between Cricket and Investing and thought that it
would be interesting to understand some of the basic
aspects of financial planning via Cricket.
One of the biggest commonalities
is the fact that both need patience & discipline— whether it is the
long form (test cricket) or the quick T20 format.
Let us look at 10 lessons common
to Cricket and Investing.
Lesson 1:
A diverse team to win..!
Would a team with 11 specialist
batsmen help to win a match or / would a team with 11 specialist bowlers? None.
A good team is diverse with
expertise in batting, bowling and fielding. Just
like a diverse team, our
investments too need to be diverse with a good mix of asset
classes like equity, debt, gold, real estate and cash, rather than
concentrating only on one asset class.
A good
asset allocation can help your portfolio to perform more consistently. What
better way to achieve this than with mutual funds, which provide access to most
of these asset classes without much hassles?
Apply cricket lessons to mutual fund
investing and come out a winner in your financial life
Lesson 2:
Multiple coaches now vs ‘one
size fits all coach’ in the good old days..`!
You no longer have a single coach
for the team like in the good old days. You have mutiple coaches like a
batting coach, a bowling coach and a fielding coach, supported by
dieticians, trainers, physiotherapists and many more.
The lesson here is that only
traditional investments like in the good old days may not work to
meet all goals now. These need to be supported by market-linked
investments like mutual funds to benefit from their potential to provide higher
inflation-adjusted returns. Mutual funds are also tax efficient.
Lesson 3:
Helmet to protect the risk of
pace..!
Cricket is a risky game. One
typically wears a helmet while playing fast bowlers. The fact that an
Australian player died recently when a bouncer hit him only reinforces the need
to understand risk better.
Like cricket, there is risk
involved in investing too. Investments carry varying
amounts of risk. Equities and
real estate, for example, are riskier while debt is relatively less risky. To
tackle risk effectively, an equity investment needs a longer investment horizon
(at least 5 years) while a short-term investment can go into debt
funds.
In cricket parlance, a fast bowler
has a longer run-up to bowl while a spin bowler has a
shorter one.
Lesson 5:
Choose players as per the
game’s format..!
These days team selection depends
on the format of the game, which means there is a different team
for T20, one-dayers and test matches. It is no longer a ‘one size fits
all’ approach. Similarly you must invest as per your goals and have separate
portfolios for each goal rather than one consolidated portfolio for all
goals.
Accordingly, you may prefer debt
funds for short-term goals and equity funds for long-term goals. A mix of the
two or hybrid funds may be preferred for medium-term goals. This is also useful
while checking your risk appetite and investing accordingly.
Lesson 6:
Multiple factors decide the
choice of players
Players are selected based on
various parameters such as their current form, their track record in India
/ overseas (based on where the matches are played), their current
fitness levels, weather conditions, pitch report, etc.
For example, the number of
spinners being played in a match could depend upon the pitch, the rival
batsmen, etc.
In the same way, there are various aspects involved
while choosing mutual funds besides their performance track record. These
include consistency of outperforming the benchmark index across
time frames, risk taken to generate returns, portfolio selection and fund
house vintage / parentage besides quality of the portfolio management team.
Lesson 4
Catches
win matches..!
This is a common phrase in
cricket, every time a catch is dropped. “You’ve just dropped the world cup,
mate,” is what the Australian captain told the South African player who
dropped an important catch in the 1999 world cup, which Australia went on to
win.
We have often seen that if a
good batsman’s catch is dropped, he may go on to score a century. A comparable
lesson for investors is not to miss investing early in life (start from your
first salary itself) and you could benefit in the long run.
The later you start the more
you need to invest monthly to create the same amount of wealth. Another analogy
is that if you do not score well in the first few overs of a limited overs game,
the run rate is much higher in the final overs.
Lesson 7:
Never miss the singles..!
You must have seen many batsmen
just nudging the ball to take some
cheeky singles. They also hit a
loose ball for a four or a six. A run a ball gives the team an average of
6 runs per over and the big shots, in addition, may give the team a
winning total. That’s where discipline and patience helps to win matches.
Investors can do this through
regular and disciplined investing using Systematic Investment Plans or SIPs
offered by mutual funds. SIPs can hit the loose ball by helping to buy more
units when the markets are low & less units when the markets are high. You
end up averaging your purchases through rupee cost averaging and could create
wealth over the long run.
Lesson 8
Play
your natural game...!
Successful players will always
advise their juniors to play their natural game and not be tense when playing
stronger teams. The moment a player gets conscious of facing a stronger
opponent, he may tend to get defensive and deviate from his natural style.
There is a high probability
that he may get bowled out in the process. Similarly, in investing you must
play the natural game irrespective of how the market is performing.
So, invest regularly rather
than timing the market. If you time the market, you may be taking the risk of
loss when the market suddenly changes direction.
Remember, your time in the
market is more important than timing the market.
Lessons 9:
Convert your 80s to a century...!
Sometimes, when a batsman is in
his 80s or 90s, he slows down and goes on to score a 100.
Accordingly, if you have been an
aggressive investor and invested for long-term goals, you need to follow a
guided path to reduce risk as you near your goal.
So unwind from equity to debt as
your goal nears. If you continue to stay aggressive nearer to your goals, a bad
year may wipe out your gains and push your goal further ahead. For example, if
you are investing for a retirement kitty, you need to slowly reduce the equity
component nearer to your retirement and move to less volatile asset classes like
debt or hybrids.
Lesson 10:
If you fail to plan you plan to
fail
Every match involves a lot of
planning, be it the team selection, the decision to bat or bowl first,
how to rotate bowlers, power-play timing, tactical batting line up, field
positioning, etc.
Teams also study each of their
opponent’s strengths and weaknesses before playing important matches. Investing
is also similar where planning is the foundation. It is rightly said that if
you fail to plan, you definitely plan to fail.
An investor needs to know his
risk appetite, his goals, his asset allocation, and review & track his
portfolio periodically to be successful in wealth creation. It also merits
engagement with a financial adviser to help in planning for one’s life goals.
Mutual
Fund investments are
subject to market risks,
read all scheme related
documents carefully.
subject to market risks,
read all scheme related
documents carefully.
A RUN A BALL TO REACH YOUR TARGET.
LIKE INVESTING SYSTEMATICALLY
IN MUTUAL FUNDS.
IN MUTUAL FUNDS.
Mutual
Funds offer multiple benefits like..!
**
Flexibility to invest small amounts or / lump-sums
**
Diversification
**
Choice of funds based on your risk preference and goals
**
Professional Fund Management
Start
investing today for a better tomorrow.
by Franklin Templeton Mutual Fund.
An investor education and awareness
initiative
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