In football, just as a team comprises 11 players, an investment portfolio should not consist of more than 10-15 shares
The FIFA World Cup has kicked off in Russia. Not just football fans, even retail investors have something to learn from this mega event.
Football, in particular, is one such sport which demands peak fitness from each player. For investors, their alacrity helps them take crucial split-second decisions while trading.
The atmosphere at World Cup matches are electric, something that Dalal Street witnesses almost every day. Wild swings are seen in the market, with some stocks tanking while others rising to new-highs.
“I have been an avid football player as it is an active sport and builds enormous stamina and strength along with mind resilience and tactfulness. I never miss any Argentina, Germany and Spain matches,” Prakarsh Gagdani, CEO, 5Paisa.com, said.
It is a well-known fact that investors should diversify their holding. But too much diversification is one important caveat that investors miss out. In football, just as a team comprises 11 players, an investment portfolio should not consist of more than 10-15 shares.
It is a prudent strategy to have 11 top stocks across sectors and not aim at replicating what Argentine footballer Lionel Messi or Portuguese footballer Cristiano Ronaldo (read market experts) did while handpicking multibaggers. The underlying set of skills which an individual acquires over a long period, be it an investor or a footballer, will determine at which position they will play or what risk can be taken from it, experts said.
Market pundits such as Rakesh Jhunjhunwala or Warren Buffett have their own strategies for picking stocks, which might not be the same as yours. Also, the risk-taking ability is higher for bigger players compared to that of retail investors.
“Have you ever wondered why Argentina never won the world cup despite the presence of Messi or why Portugal never won the world cup despite the presence of Ronaldo. The answer is that a few swallows do not make a summer,” Jaikishan Parmar of Angel Broking, said, adding: “Winning in soccer is all about team effort. That is the reason countries like Brazil and Germany have won the World Cup 9 times between them. The same applies to investments too. Get your investment teamwork in place.”
Parmar feels investors should combine top-of-the-line research with top-of-the-line execution and risk management to hit upon one's winning formula.
We asked many market experts what investment lessons retail investors could learn from football. Listed below are their answers:Start at an early age
Sunil Chhetri, India's highest goal scorer as well as the most-capped player, was just 21 when he scored his first international goal against Pakistan in 2004. Since then, he has scored 64 international goals and is second in the list of top scorers after Ronaldo. He is referred to as 'goal machine' by the Indian media.
“Investing is something that you should start early. The earlier you start, better are your chances of reaching your financial goals in a relatively shorter time. This is due to the power of compounding,” Jimeet Modi, CEO & Founder at Samco Securities said.
For instance, a person who starts saving Rs 20,000 every month at the age of 25, and invests for only 10 years, will have more money when he retires at 65, than someone who starts when they are 35 and invests Rs 20,000 every month continuously for the next 35 years.Take calculated risks
Take the case of Alex Ferguson, the former manager of Manchester United. Ferguson replaced his old and experienced players with a young team (average age 24). He invested in those players for 10 years and Manchester United went on to become the best club in England.
Similarly, in investing, the riskier your investment, greater could be the reward (multibagger). A smart investor should look at minimising risks while maximising returns.Review and make changes as and when needed
Every substitution in a football match matters a lot. Similarly, investors will have to review their portfolio and make changes as required by substituting under-performing shares with good ones, Modi stated.Don't worry about ups and downs
Southampton Football Club hit rock bottom when the club went into administration and was relegated to League One. After Nigel Adkins took over as manager, things started falling in place. Under his stewardship, Southampton was promoted to Championship in 2011 and returned to the Premier League in 2012 season, securing successive promotions.
Despite knowing that equities deliver greater returns in the long-term compared to other asset classes, Modi said investors defer investing due to the volatile nature of the stock market. “While there is no denying that stock markets are volatile in the short term, over the long term, they always bounceback. The average returns are also much higher than traditional safer investment options.”Seek professional help
While raw talent alone can make you a good football player, it takes a lot more to become the best. This can be done by seeking professional help from the most experienced players.
According to Modi, most of the time wrong investment decisions are taken because investors don't have time to research companies. “If you don't have the time for research, it's better to seek professional advice as he has a lot of experience.”Don’t fancy Messi and a Ronaldo
A variety of trait separates one player from the other. Likewise, an investor shouldn’t look at a big-bull as a sole benchmark. “Just as different players have a diverse set of skills, each investor will have their own strategies. The underlying set of skills which an individual acquires over a long period will determine which position they will play or what risk can be taken from it,” Rohira said.Be prepared
Preparedness makes a lot of difference in soccer. Teams that win are the teams that practice hard, keep improving and focus on fitness. “When you invest, the more prepared you are with information, analysis and research, better is your chance of achieving success,” Parmar said.Think differently
Most teams do their homework before a match as the regular moves of an opponent are known. It is only when you surprise the opposition that you make a difference. “Even in investing, you need to think out of the box for new ideas, themes and disruptions,” Parmar said.Getting the right strategy
Lastly, winning in soccer is all about getting your pieces together, Parmar added. “When it comes to investing, you need to perfect your stock selection, risk management and execution.”It is good to be above averageFinding a Messi or a Ronaldo is one in a million chance and very difficult to reach, therefore the chances of disappointment is very high, said Gagdani. “It is good to be above average, where the chances of success increase manifold and one could easily find happiness through investing.”