Investing Lessons from Cricket: How staying at the crease will increase your chances of scoring centuries

August 26, 2020 3:22 PM

With all the clamour going around mutual funds’ returns, delivering less than the double-digit in the last five years, there is an important lesson to be learned from the great game.

Cricket and Investing, Cricket, Investing, investing lessons from cricket, mutual funds, Covid-19, Nifty Total Return Index data When a batsman scores a century, he doesn’t try to hit a six/four on every ball, and in fact, there are times when he chooses to leave the ball alone.

Cricket (England Vs WI test series) resumed post the Covid-19-induced break after almost four months and ended in quite the way an ardent fan would have liked. It was a wonderful series, one that will hopefully pave the way for more cricket to come. Credit to the Board for introducing brilliant set of protocol and to the players for following them so well.

Don’t blame me for starting an article on finance with cricket. In our country, cricket is ‘the religion’ and not ‘a religion’! With all the clamour going around mutual funds’ returns, delivering less than the double-digit in the last five years, there is an important lesson to be learned from the great game.

Before we delve into drawing parallels between the nuances of investing and cricket, let’s do some number crunching. We have considered Nifty Total Return Index data from 1st Jan 2008 as it completes a period from one financial crisis to another.

 

Both the graphs above (3 & 5 year rolling returns of Nifty 50 TRI) exhibit one critical phenomenon of consolidation, where returns have started picking up. That said since the equity mutual fund schemes’ returns are considerably lower than 3 years and 5 years averages in the past (about 11%), investors may feel disillusioned with this vehicle of investing. But, from 1st Jan 2008 till 29th Jul 2020, on a 5 yr daily rolling return basis, there were 2767 observations, of which only 17% times the return was less than 7%, which can be considered a normal fixed deposit return. In almost 83% of the discussed data period, equity yielded more than FD returns.

Now, going back again to the game of cricket, one would have noticed that when a batsman scores a century, he doesn’t try to hit a six/four on every ball, and in fact, there are times when he chooses to leave the ball alone. It makes sense to leave a few deliveries when the bowlers are at their best. There is a reason why sometimes leaving the deliveries is called ‘well left’ because they deserve the respect of being left alone. The critical aspect is to stay there, at the crease, biding your time at good ones and punishing the bad. As long as the batsman sticks to this simple game plan, sooner or later he gets a big score. Same is the case with investing. There are times when the economy is not booming and during these times all you need to do is sit back and wait. The more time you stay at the crease (stay invested), the more likely you are to reach your hundred, err, goal.

Markets have recovered by almost ~48% from the bottom formed at 23rd Mar, 2020. An investor who panicked and redeemed would have missed such amazing recovery in his portfolio. Missing out 5 days during this period would have costed 60% of the recovery! Staying at the crease surely helps!

In a nutshell, consider current times to be a fiery bowling spell being bowled by the likes of Marshal, Holding, Garner and Roberts and all you need to do is to show respect! The spinner is next on the cards and you will get to free your arms!

(By Raveendra Balivada, Head-Investment Advisers, HDFC Securities)

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