You must be loving this Cricket World Cup Season 2023. The Cricket World Cup has always been a most popular event. As India is hosting the World Cup of 2023, this is more special. What if I say, there are some hidden interesting Financial Lessons to be learnt from Cricket?
Let’s get into the blog:
1. Diversification:
Have you ever seen a cricket team comprised solely of spinners, fast bowlers, or batters? No. A successful squad is comprised of a combination of fast bowlers, batsmen, all-rounders, and spinners, depending upon playing conditions, form of players, etc.
Similar to cricket, investment diversity is crucial. By spreading their investments over a variety of sectors, regions, and asset classes, investors can diversify their portfolios and lower risk. Occasionally, spinners must step up and take the opposition’s wickets when fast bowlers are unable to have an impact.
Similarly, if a portfolio is well-diversified, investments in the debt market might offer stability during a downturn in the equity market.
2. Adaptability:
Be it a batsman or bowler, they first understand the pitch. Is pitch flat, Dusty, Slow, or fast, and accordingly they plan their moves. They adopt the situation, match conditions, opponent analysis, and plays.
Similar to this, investors need to be flexible and adaptive, modifying their investment strategy to consider market scenarios, valuation, and prevailing economic conditions. If the market is overvalued, shifting money from Equity to Debt makes sense.
3. Patience and Determination:
In general Government Bodies of Cricket i.e. BCCI in India faces challenges such as mismanagement of ticket selling or IPL franchises frequently deal with challenges, such as losing streaks or underperforming players. Successful teams, however, exercise patience, adjust their strategies, and allow their players some breathing room. For example, in team, Chennai Super Kings (CSK)- captain cool M. S. Dhoni patiently backs the under-performing players.
Similarly, investors need to have patience during a market slowdown, avoid making impulsive decisions, and give their investment time to grow. The secret of the Power of Compounding lies in time. Investors with patience and determination, can create wealth in the long term.
4. Too much is not always required:
On this note, all Indian Cricket Fans & supporters would agree that there are not many changes in the Indian cricket team. Further, if we observe the CSK team in IPL, M. S. Dhoni, the captain Cool, does not frequently change the lineup or the player position. He focuses on how he can get the most out of each team member. And as you can see, CSK is among the most prosperous IPL teams ever.
In the context of Mutual Funds, many investors wish to invest in every category. Over-diversification is always harmful. It lowers portfolio returns rather than delivering the benefits of diversification. You don’t have to invest in every category fund, choose 4-5 good categories or funds (as per the investment amount) and stick to it.
5. Past Performance does not guarantee Future results:
Let’s take the example of England Team, a winner of Cricket Would Cup 2019. Despite this fact, this World Cup is not gong well for England. Thought, the competition is not over yet. But, no one can predict the future.
Another example of Chennai Super Kings (CSK) & Mumbai Indians (MI), the two most successful IPL teams. Despite the said fact, these could not win the 2022 IPL trophy. And Gujarat Titans (GT), a new team, won the title.
Investors should not base their decision just on historical success. Investing decisions shall not be made based only on the historical results of the funds. A wise investor would prioritize and set goals for his investments and will check to see if the investment avenue complements those aims or not.
6. Value investing:
Cricket IPL is the best example to justify Value Investing. Teams search for players that provide value for money during IPL auctions, combining talent and cost. Similarly, value investors look for undervalued stocks or other assets that have strong fundamentals but are presently being sold below their intrinsic value. Further, investors should look at the risk-reward ratio of an investment.
7. Long-term Vision:
Building a solid base of outstanding players is the mai priorities of successful cricket teams.
Similarly, investors should have a long-term mindset and refrain from letting short-term market changes affect their decisions. Better returns may be achieved by creating a well-rounded portfolio and investing for the long term.
You may like to read this Blog: Do Best, Leave the Rest! World’s 8th Wonder Compounds Money!
8. Risk management:
It’s important to understand what “standby” means. Although they are not in the starting lineup, standby players can still participate if necessary. When a player on the team is injured during a cricket match, this usually happens. The term for it is risk management. Risk management refers to handling emergencies.
The first step in risk management is to build up an emergency fund large enough to cover your costs for six months. This is one of the most important Financial Lessons to be learnt from Cricket.
9. Teamwork and leadership:
It has happened many times in IPL history, that an underperforming player, when picked up by the other team, his game is improved. The performance of IPL teams & team players depends on effective teamwork, strong leadership, and the ability to bring out the best in each player.
Likewise, investors can benefit from Financial Advisors, Mentors, or Joining Investment communities to gain insights and support for their investment journey.
Conclusion:
Did you like these Financial Lessons to be learnt from Cricket? Cricket and investment are completely different ball games altogether. However, a few things are in common that can be applied to personal investment. Investment lessons should be applied in the context of discipline, patience. Further, considering personal financial goals, risk tolerance, and investment horizon.