How to be a successful investor: This football manager analogy will put you on right track
The game of investing is a lot like football. You have to tackle your problems, block your fears and score points when you get the opportunity. Tactical analysis and planning are essential in football as well as investments. Let us see how tactics used in football apply to investment planning.
Do not put all your eggs in one basket
Football, like investments, is a game where the objective is to score goals, which is similar to creating wealth in financial terms. But at what cost? After all you have only 11 players (limited funds) on the pitch. The correct allocation of these players in defensive and offensive positions is essential to obtain the desired results. A right mix of equity and debt will ensure that you ‘attack’ and score (make capital gains) with your high-risk equity stocks and ‘defend’ (don’t concede/ lose money) with your low-risk debt holdings.
All-out attack or ultra-defensive
Taking calculated risks is an essential trait of any successful manager/investor. It is important to first establish what level of risk one is willing to endure. Is scoring lots of goals (high capital gains) important? Or will a draw suffice, which will ensure you don’t lose the game? (Procure losses with your investments)
Investors also face short-term dilemmas when they have a chance to hold on to their stocks and hope for a higher return or redeem their stocks and book profits immediately. Investors, like football managers, possess the option to “counter-attack” (buy aggressively when the markets are down) or play “possession football” (make conventional decisions and flow with the market).
Football managers have their own trademark styles, which say a lot about their risk taking abilities. Some might be conservative and might play with five defenders at the back (debt-oriented portfolios), while some might be more flamboyant and play with only three defenders (aggressive equity-oriented portfolios).
Managers always keep an eye out for the marquee players in the opposition team. There are certain players who need to be kept under check in order to minimise the threat from them. This could involve sacrificing a player to nullify that threat. Similarly, one can use a small fraction of their funds (a player) to cancel out certain uncertainties in the market, this can be done with the help of hedging and reducing risk.
Gruelling fitness regimes and optimum nutrition have revolutionised the game. Similarly, stocks that give high returns and capital gains should not be extremely volatile and low-risk stocks should give moderate levels of returns on a regular basis.
Football is a game of 90 minutes and until the final whistle blows, the manager has full faith in his players to deliver the desired results. Similarly, it is important to be pragmatic about one’s investments and not expect super-fast results. There could be strenuous situations arising for an investor where he/she would not be certain about holding or selling their stocks. In such situations, an investment advisor can guide you and ensure your investments are well taken care off.
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Post-match analysis helps bring out any shortfalls that occurred during a game. These must be rectified to ensure optimum results for the games to come. Likewise, while investing it is important to have a guide or a trusted professional who will point out if there are any errors or whether certain areas in your portfolio can be improved upon. This can ensure prime utilisation of your resources.
By Tarun Birani, DNA MONEY
(The writer is founder & CEO, TBNG Capital Advisers)