IPL 2019 is in full swing with another week to go before the final winners are declared. Having said that, the season is currently in full swing and is in the last lap before the winner is unveiled.
The season had its share of thrill, adventure, ifs, buts, disappointment and of course, a high degree of enthusiasm and energy.
While we are drawing to the close of this season, it would be interesting to take back some lessons from the IPL 2019 that works well in the market – something you follow 365 days.
Assume you are the captain of the IPL, or this case the market. What would be your key takeaways?
1. On-Ground Homework and Weather Is Key to Success
For IPL, a battle is half won if the captain does an excellent job in analyzing the pitch, soil, and weather. These factors help a captain decide on how the ball should move off-field and on on-pitch and accordingly he chooses to bat or field first.
These decisions also help the captain decide on the composition of the team.
Applying a similar theory to the capital market, you would be able to make money. You need to master the way of analyzing the market and reading in between the lines when it comes to stock analysis.
Also, like a captain would change his team based on weather and pitch, you should alter your portfolio’s asset allocation during different market conditions.
Like a smart IPL captain – for example, MS Dhoni who has been a successful India captain and Captain of Chennai Super Kings (CSK), you can succeed in the capital market if you master these aspects of the market.
2. Spread Your Risk
Why do you think CSK has always been a tough team to beat in IPL?
We can take Dhoni’s example here again.
He always tries to keep an extra bowler if he expects it to be a bowling pitch. Similarly, on a hard pitch, he is always seen to keep an allrounder.
Similarly, if you seek to lower your risk while investing, higher will be the chances of being profitable. For example, going all-in in equity is good but not always.
You may choose to have some exposure in large-cap equity or Balanced funds or some portion of debt funds to spread your risk.
You can also look at investing in four funds if you are looking to invest around 15-20K per month.
3. Keep Moving to Scout for Opportunities
Opportunities don’t come knocking always.
A shrewd captain like Williamson who leads the team from Sunrisers Hyderabad has always used such an approach.
Often, he is seen rotating the strike while chasing a target so that whenever the striker gets an opportunity from a different set of bowler, he can put to use for getting the ball behind the boundary.
This approach helps the team chase swiftly while collecting bounties whenever there is a bad ball.
As an investor, you should always work on your investment plan and come out hard when there is opportunity due to an event such as geopolitical tension, macro event or panic selling.
For example, if you are an investor who started investing in January 2016, you should begin gradually every month come in strongly right after November 8, 2016, when demonetization was announced, and the market corrected despite being fundamentally strong.
4. Take Time for a Better Perspective
There is strategic time out in matches these days, which was not seen a decade ago.
Do you know why?
The captain, vice-captain, seek feedback from the team, and they go back to the drawing board to see how the team is performing against their expectation.
They also decide any change to their strategy and subsequently try to pull out of the team if the game demands so. Every player offers a fresh view based on his/her experience.
You should adopt a similar approach when investing in the market. If any of your investment – be it stock or fund has gone wrong, that doesn’t mean you have lost the battle.
You can always come back, re-think on the investment and assess it from a 360-degree angle to get a sharp understanding. This approach will help you arrive at a decision that is right for your portfolio.
5. Take a Calculated Risk When Required
You would not see a spinner opening the batting line up or even a bowling line up.
But these are often seen when a seasoned captain heads the team.
For Mumbai Indians, it is seen a couple of times that spinners start the bowling line up and particularly during the power play, spinners took the maximum wickets for Mumbai Indians, when compared with any other team.
If you are in a position to take some risk, take a calculated risk and allocate your portfolio to riskier investments so that you benefit.
2017 was a year where everyone made tons of wealth but the ones who outperformed the market were the real winners as they had the extra edge of calculated risk-taking ability.
6. Build a Portfolio the Way a Captain Builds His Team
This season, RCB was often said to not choose the right team and experts say this could be a reason for their poor performance as well.
A captain tends to select both young and experienced players. He also looks to add aggressive and defensive players and even players having spin and pace as their expertise.
That is how your portfolio should be.
Like a captain nurtures and builds his team over time, even a portfolio manager does the same. He/she would have a different combination of stocks such as various sectors, companies of varying sizes, companies operating in a different region, and different style of management, etc.
Ideally, you must have equity, bonds, gold, real estate and other asset classes in your portfolio and achieve a portfolio of all weather.
7. Focus on Critical Impact Areas
Kane Williamson defended a low score in multiple events. But is that very simple or was he fortunate?
Not really. And also, good bowling is not the answer.
Williamson tightened fielding during the power play and last few overs of the match to ensure that batsmen make mistakes that create wicket opportunity.
This was the impact point for the team to perform. You should have some impact points for a portfolio and focus on them to achieve returns.
8. Shock treatment Isn’t bad
An essential lesson for IPL players.
There are times when the captain feels everything is going wrong, but that is the time to keep cool.
Dhoni and Sharma can be considered classic examples. There will be times when the match might be slipping out of your fingers, but don’t lose your cool!
It merely means you should be prepared for bad times and never indulge in panic selling. Instead, you should assess and then act.
To conclude, you can implement a lot of these strategies to your portfolio.
Remember, ultimately it all boils down to attitude.
You should look to build your strength and have the right attitude and temperament while investing. These are likely to help you win over the long haul!
Disclaimer: The views expressed in this post are that of the author and not those of Groww