Simple mantras to secure financial freedom

It is often seen in real life that someone starts an activity to achieve a specific objective. However, things may not pan out as desired. There is always an element of uncertainty involved when one takes up any task. One may take many precautions and ensure things do not go out of hand, but there could be numerous variables that can change the course of the activity. Even though one may end up following through the steps as planned in the beginning, the outcome may be quite different. Such is life.

What should one do in such a scenario? Ideally, one needs to diagnose the situation to understand what could have gone wrong – it could be the assumption – it could be some extra-ordinary developments beyond one’s control – it could be some error of judgement – or it could simply be a case of an exception. It is important to analyse the situation to understand whether what one did was right in the first place.

This is how an individual or an organisation or the society learns. This is nothing but learning from one’s experiences. And as one has wonderfully said: “Good decisions come from experience, and experience comes from bad decisions.”

The other alternative course of action is to blame the situation or the circumstances or other people. Instead of diagnosing what went wrong, people tend to blame the circumstances. Blaming the circumstances is easier than taking the blame oneself. Instead of checking if the execution was faulty, one discontinues the activity against conventional wisdom.

The difference between the above two approaches separates a successful investor from an unsuccessful one. “A winner is not one who never fails, but one who never quits.” One can rephrase this in the parlance of investments. “A successful investor is not one who never loses, but who stays invested in the market.” Those who have the staying power – both monetary and psychological can have the last laugh.

The field of investment is very interesting in that the short term movements of prices may not have a relation with the long term movements, as the drivers of prices are different for short term compared to those for the long term. The short term price movement is governed by the demand-supply equation, whereas the long term movement is governed by the fundamentals of the security under question. Thus, a stock’s price movement in the short term may be determined by how many investors want to sell it compared to how many want to buy it. However, over longer periods, the price movement follows the movement of the profits generated by the company.

Even at the cost of repetition, it is important to remember the immortal message from the master investor Benjamin Graham, “Stock markets are like voting machines in the short term, but are like weighing machines in the long term.”

Human mind is quite feeble when it comes to understanding the above relationship.

However, it is just not investments. This relationship applies to many other situations in life. The wonderful book regarding modern retail in India, “It Happened in India” carried one very powerful message on the relationship between short term risks and long term rewards. The book narrates the success story of Pantaloons and Big Bazaar. The message is, “In any success story there will be a point where the belief in the future outweighs the risk that you are taking.” This, translated in the language of investments, especially in stock markets, explains the relation between short term volatility and long term return potential.

The lessons, as said earlier, come from bad experiences. In order to get these lessons, one needs to go through the experience. As someone has said, “Success is a lousy teacher.” It is the failures that teach the willing student. We will end this with a shloka from the Bhagvad Geeta,

Hato va prapsyasi swargam, jitwa va bhokshyase mahim.
Tasmaduttishtha Kaunteya, yuddhaya krutanischaya.

Lord Krishna asks Arjuna to fight the war stating you will get to rule the world if you win and will go to heaven if you die. The world of investment is also a war for securing financial freedom. Those who win this war become financially free. Those who lose the battle can take some valuable lessons and move ahead.

- Amit Trivedi

The author is running a knowledge academy. He can be reached at karmayog.knowledge@gmail.com

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