May 2021 - FinDIY

Pant, Pujara and Investing Styles

How two Batsmen with completely different styles brought victory to the Indian team and what investing lessons can we learn from the two

India’s most followed religion – cricket has a lot Investing lessons for us. Let’s look at two successful Batsmen of recent times and see what they teach us about Investing.

Pant, the Aggressive Investor

Pant is a big hitter. He is most known for his fastest 50’s and 100’s. He has won some big matches for the country. The aggressive style of playing has at times cost the wicket too early in the match not giving a chance to make any impact in the score board.

An Aggressive Investor is someone who is betting on a few multi baggers to get good portfolio returns. They are not shy of the hero or zero trades, where they may lose in most trades, but a few good ones will likely compensate for the lost ones.

Pujara, the Conservative Investor

Chetaswar Pujara said this in a recent interview with ESPN.

“If I am successful with my method, I don’t need to take any risk. Even if you hit over the top, you just get four runs, and two extra if you clear the fence. So the question is whether it’s worth the risk.”

Here is a man who understand his style and understands risk. There is a great parallel to this in the investment.

Pujara is the kind of Investor who puts most of his money to government guaranteed schemes such as PPF, NSC, KVP etc. He is ok with returns on par or may be even below inflation as long as it consistent and has sovereign guarantee.

Are you Pant or Pujara ?

In Investment the most important question is to ‘Know thyself’. How much time are you willing to put to learn something, how much risk can you take which means how much money are you willing to lose, what is your investment tenure, How disciplined are you?

Playing in the net practice is not the same as playing in a real match ! A back tested strategy with high win % may not work for you as it does not suit your style.

Before you go looking for answers, look for the right questions to ask and know yourself.

How can you Buy Happiness with Money?

How to spend money to buy happiness?

“Money Can’t buy happiness”

is a lovely popular quote that is most certainly wrong says Dan Gilbert, Harvard Psychologist and author of ‘Stumbling on Happiness’.

Money provides an “opportunity for happiness,” the authors say, since moneyed people can live longer and healthier lives, enjoy financial security, have leisure time, and control what they do every day.

Dan Gilbert in the paper titled,

‘If money doesn’t make you happy then you probably aren’t spending it right.’ – talks about the right way to spend money to optimize happiness. So how do we do it?

(1) Buy Experiences instead of things

The best memories I have of my childhood were those I was on vacation with my family. The best memories of my adult life were also in obscure mountains and long road trips. However, I don’t think our trip around the could have been any better if we had travelled in a sedan over a hatchback. We like experiences more because we anticipate and remember them, the research says, and we appreciate them longer.

(2) Spend money to help others instead of yourself.

The money we willingly spend on others gives us a greater joy over those that we spend on ourselves. Look around you and see who you can help out. The pandemic has given us all a opportunity to do that to those unfortunate around us.

(3) Buy many small pleasures instead of few big ones.

Random gifting of a single rose and love notes multiple times during the year would bring net more happiness to your spouse than an elaborate exquisite dinner in Taj and a DeBeers Diamond Necklace during anniversary.

(4) Buy less insurance for “GOODS”

Extended warranties, replacement guarantee for the LED display, generous return policies may actually under mine happiness as we get used to good and bad things equally fast.

(5) Pay now, consume later

We are in the culture of use now, pay later, but it is the delayed gratification of desires that gives the most amount of happiness for most of the happiness is in the anticipation more than it is possession itself. Planning a vacation was fun, saving for it monthly gives you the anticipation that prolongs it, rather than putting it on your credit card and having to pay for it later.

(6) Think about what it’s really like to own the thing you want to buy

The cabin in the woods would have mosquitoes, your swimming pool will need to be cleaned, your beach house will be dirty with sand the furniture will get spoiled faster with salty air. Owning things in actuality are not as good as they show in ads. So give it a long hard thought !!

(7) Stop the comparison shopping

What is otherwise known as keeping up with the Jones. Too many people end up with bigger than necessary houses, Tv’s, Car’s because they are trying to impress somebody like parents, spouse, Ex’s, colleagues etc. If you let your buying decisions be determined by the matching or bettering what someone else has- that my friend is a bottom less pit.

(8) Ask your friends.

Your friends know you better than you know yourself. Your friends can tell with better accuracy who you should date, which of your relationship is likely to work out for you. You are too invested and bit to blind to see those things for yourself. So next time do ‘ask a friend’

It’s not the toys that makes the child happy but the play. It’s the same with you too. Rather than adding bigger, faster and fancier gadgets (toys), spend your money well and buy happiness.

Based on : “If money doesn’t make you happy then you probably aren’t spending it right.” by Dan Gilbert

“What is Risk?”

Do we really know what risk is ?

I did my MBA from a B’School that is routinely featured in the top 20 Business Schools in the world. One of the best things I liked about my MBA is how sound they made our foundations on the subjects.

We were then in second half of my MBA program and the class was ‘Risk Management’. My professor’s first question to the class was:

“What is Risk?”

Various answers turned up:

“Higher the Risk, Higher the reward”
“Variability”
“Variance.”
“Standard Deviation”
“Beta”

We came up with numerous answers but it was obvious even to ourselves that we were lost in jargon and never had given this simple question deep thought. Our professor also indulged us, until we had exhausted all possible answers and fell silent.

Finally my professor answered,

“It is the chance of losing your capital”

Suddenly, all the superfluousness of ‘high risk high reward’ / ‘risk hai to ishq hai’ all struck us really hard. And I realised,

The biggest risk is not knowing what one is doing.

Do you really understand the instruments that you have invested in?
What are the worst case scenarios?
How realistic are they?
Does your asset allocation permit the rare yet plausible worst case scenario?
What is guaranteed ? Guaranteed by whom?
What is secured? Secured by What?

Don’t get lost in jargons. Its ok to refuse to invest in an instrument you don’t understand. In fact it’s lot better to do nothing with your money than something you don’t understand at all. It’s ok to ask a stupid question. You don’t need to trust anyone with your money.