A friend of mine has written about last week’s cricket match between India and Pakistan. I have taken it a step further into the realm of the stock market. Here are the facts:
1) India scored 85/5 against Pak’s 83 all out, but three Indian batsmen got out for a duck, against none for Pakistan
2) In a low scoring match, India’s best bowler Ashwin was the worst of all Indian bowlers with figures of 3-0-21-0. Only Wahab Riaz was worse than him in the match. Easy (but completely unfair) to conclude from a single match that Ashwin was the worst bowler
3) The second highest score in both teams was “extras”. If we total up the runs in both innings, “extras” was second highest score after Virat Kohli. “Extras” accounted for more than 17% of total runs scored n the match
4) Only 18 boundaries were scored in the entire match. Virat hit seven of those, just one less than the entire Pakistan team’s eight. Not a single six was hit in the whole match
Now, here is my interpretation from a markets perspective:
What happened was a complete and unexpected ‘sell off’ causing severe volatility. Hence, even class players (companies) looked like duds. Had Rohit Sharma, Ajinkya Rahane, Suresh Raina and Ashwin been companies, would an astute investor write them off?
Similarly, when companies in a mutual fund scheme lose value unusually in a ‘sell off’ causing the NAV (total score) to fall sharply, be smart, be astute, gain the maturity. Never write them off. For, they will all rise without a warning. Look at Yuvraj and Ashish Nehra. Despite age catching up with them, they continue to deliver.
Invest in the Indian team if you believe in them. Ignore volatility caused by some unusual matches. If you believe in the story of India, keep fears of the market in your closet, lock it and throw away the keys.
The Bus Journey
The bus would reach sharp at 8 am. Mr Risk would nonchalantly climb in and gently occupy his seat. The other passengers would all step in but choose to sit away from Mr Risk.
This went on for several months.
Then one day Mr Risk stepped in with a companion who looked quite prosperous. Over the next six months, the companion seemed to become even more prosperous and chirpy. Soon another companion was seen along with Mr Risk. He too seemed happy and rich. Then one more joined him and one more and so on.
This intrigued one of the passengers, who finally mustered up the courage to ask the people who had befriended Mr Risk, “How come you are associating with Mr Risk? How can he be your friend? Don’t you know he is Mr Risk?”
One of Mr Risk’s friend volunteered to answer, “He may call himself Mr Risk because he is honest and upfront. He wants you to understand what ‘Risk’ is before befriending him. Mr Risk in fact is the most truthful and honest person and is as transparent as one can be. He neither confuses or cheats. All he says is get educated before shaking hands with him. And by the way, risk has nothing to do with losing your money, but rather it means that you could experience market volatility (market swings up and down) occasionally. And as a result of this volatility, you may experience short-term loss of wealth. But again, over the long term, all these losses would get erased and you could experience some serious big time wealth formation. This is what he calls ‘risk’ because his intention is not to mislead others. What he believes in is, “underpromise and overperform” and not vice versa. While he calls himself Mr Risk, I know he is the best companion to have in the journey of wealth creation.”
This high conviction speech had left all and sundry dumbfounded. The only sound that prevailed was the sound of silence.
Dharmendra Satapathy is the Founder Director, Next Level Education