Investing lessons from down under
The recently concluded tour of Indian cricket team to Australia has been remarkable in many ways. I am sure, the cricket administrators, analysts, strategists and guides in the country would analyse the outcome of tour from the viewpoints of future playing strategies and improvement in fitness regime, and career path for the young promising players who may not get adequate opportunities due to limit of 11 playing members in the national team.
On my part, besides thoroughly enjoying two months of engrossing game of cricket, I have drawn some key inputs for investment strategy purpose from this tour.
Pujara vs Pant debate is meaningless
One of the prominent topics of discussions, before final day of the Brisbane test, was the “slow” batting of Cheteshawar Pujara; though the victory at Gabba ended this debate with tins of praise being heaped on Pujara for his grit and resilience. A loss or draw at Gabba might have seen strong criticism of Pujara.
On the other hand, Rishabh Pant, who has been consistently the target of critics for his irresponsible batting, was praised as true successor of Dhoni – A great finisher and match winner.
I find nothing new in this discussion and criticism. Players like K. Srikkanth, Virendra Sehwag, Yuvraj Singh, Kaluwitharana, Shahid Afridi, etc. have always faced this kind of criticism. The fact is that competitive cricket needs to strike a balance between entertainment and classical game. For every Gavaskar a Srikkanth; for every Tendulkar & Dravid, Sehwag & Yuvraj; and for every Jayasuriya a Kaluwitharana is needed. The balance between classical techniques and aggressive innovation is consistently leading to evolution of the game and keeping the interest of spectator alive.
Applying this analogy to investment strategy, we must understand that constructing an investment portfolio is like making a cricket team. The portfolio must strike a balance between safety, liquidity and returns. While anchoring the portfolio with consistent compounders, investors must keep trying the new businesses which could be potential winners due to their innovative methods and technology. Of course the failure rate in this endeavour will be high, but one winner will more than compensate for these failures and enhance overall portfolio return.
Just to illustrate, HUL played a Pujara for 10yr (2001-2010); ITC is playing the same game for past seven years; and RIL played it for six years (2011-2016). For these, the balance was provided by the likes of Bajaj Finance, Page Industries, Divis Lab, Eicher Motors, Havells, HCL Tech, PI Industries etc. Many rising stars though failed to live upto the expectations, e.g., IDFC First Bank, DHFL, Yes Bank, JP Associates, Suzlon, etc.
One pertinent question here would be what should be the proportion of Pujara’s and Pant’s in a balanced investment portfolio!
Well, for that one would need to sit with her/his investment adviser and work this out.
36 all out and 325/7 on fifth day Gabba pitch (January 2021) are both exceptions
On 19th December 2020, the fabled Indian batting line up wilted under pressure and was all out for a mere 36 runs in Adelaide. One month later on 19th January 2021, a much depleted team scored 325 on the fifth day Gabba pitch facing infamous hostile Australian bowling. The both performances are true but not normal. These kinds of performances do occur once in a while, but cannot be key parameters for evaluating the standard of Indian team.
The benchmark indices fell by 40% from peak in two months (February-march 2020) and have risen over 90% in past 10 months. The sharp fall and fast recovery, both are not normal conditions. These deep oscillations do occur almost every 10year, but cannot be a key parameter for investment strategy. Only a trading strategy can factor in these kinds of oscillations. As such these are more relevant from risk management viewpoint of brokers and lenders, rather than investors.