The ongoing cricket tournament has lessons for young investors on making every rupee count
The most-awaited Vivo Indian Premier League (IPL 2019) just began last week. Cricket enthusiasts are putting their heads together to figure out which of the eight contesting teams shall emerge as the winner this season. For young investors, here are six lessons they can learn from the ongoing IPL 2019 season.
Have the end in mind
The winning team is the one that makes sure that its players have the ultimate goal in mind in every ball they bowl/bat. The end result is winning the final match by a significant margin. Similarly, those joining the workforce in year 2019 have 40 years of work and earnings ahead of them. So they must think about what shall be their cash and bank balance on March 2059 and the value of the various assets and liabilities then.
One way to arrive at the 2059 figures is by adding up the future value of current figures for post-retirement expenses, education and marriage expenses for kids, medical expenses for family members, etc. If one could arrive at an approximate figures, then it shall act as a guide for the next 40 years of the investment journey.
Sooner the better
The champion team establishes the lead in the early part of the match by scoring as many runs as possible in the first six overs or taking as many wickets as possible in the early overs. Similarly, law of compounding requires one to start investing as early as possible. It is prudent to start investing right from the very first month of your worklife.
Every ball matters
Every ball has the potential to either score for the batting side or to get a wicket for the bowling side. Winning team is the one which remembers it so well that its team members are not casual about approaching the next ball in the match. Similarly, every month’s salary or income is important for an individual as it determines his future prospects. Every investment will contribute to meet the individual’s needs so one should allocate a significant portion of salary/income to an investment on a regular basis.
Savings saves the match/man
The winning team is the one that saves runs by avoiding extra runs by wides, over- throws, no-balls and good fielding unit. Similarly, one needs to save as much as possible from what one earns on a regular basis. On an average you can save 50% of what you earn. This means that 50 paise of every one rupee earned is earmarked both for the present and the future. Logically, one who saves 50% of his earnings maintains his lifestyle and meets his financial requirements in a comfortable manner on a regular basis.
Play the match/investment using fundamentals
The winning team knows its strengths and weaknesses and plays using its strengths and not by defending its weaknesses. Winning teams do not go by popular perceptions but by their own assessment of their strengths. Similarly, an individual needs to invest in firms based on its fundamentals such as growth rate, payout ratio, risks, profit margins, and overall financial performance metrics. One reaps the benefits in the long run and hence one should invest in avenues with strong fundamentals with a long-term investment horizon.
Revisit and revise the strategy
The winning team may find reality very different from its initial strategy and hence it keeps revisiting its strategy and revising it in order to keep winning the matches. Similarly, you need to revisit your initial portfolio of investments and revise the portfolio such that your overall return from your investments is maximised. Last but not the least; the winning team has a perfect alignment of the above stated six features which is true for an individual in accomplishing his desired investment outcomes on March 2059.
The writer is faculty member, IIM Ranchi