Knowledge, discipline, patience: The holy trinity of successful investing

By prioritizing knowledge, discipline, and patience, investors can navigate market fluctuations and harness the power of compounding to achieve their financial goals. Remember, understanding the risks and avoiding impulsive decisions based on short-term volatility are crucial for staying the course. Just as the fable of the Golden Goose reminds us, patience is key

“Sab Samay Hai Nivesh Ka, Samay Ki Chinta Mat Karo.

Bas Samay Tak Tike Raho, Sahi Samay Tak Dhairya Dharo”

Translation:

Every time is a good time for investment, don’t time your investment.

Stay invested for long term, your patience will bear fruits of investment.

I would start with following couplet by one of the most celebrated Urdu poets Mirza Galib:

“Agar Ishq Karna Hai To, Adayen Wafadaaari Bhi Sheekho

Ye Chaar Din Ki Bekaraari, Mohabbat Nahi Hoti.”

(If you want to fall in true love, learn to be faithfully loyal, transitory attraction cannot be taken as a true love!)

How true are his above observations, which are equally applicable to every aspect of life with Investment being no exception. Largely, this is a success Mantra in the field of investment, however, as nothing can be guaranteed in Life, therefore, in investment also nothing can be guaranteed, but if one remains invested for long term, there is a very high degree of probability of garnering good positive returns, one is looking for. More importantly, investing for long terms almost completely obliterates risk of any loss and in the event of unlikely situation of loss, it reduces severity of loss to the minimal.

Therefore, one of the important rules of investment is that one should always invest with a long-term perspective. In fact, there is only one way to get great returns on your investments and that is to keep your investment for long enough to reap the benefits of compounding, which starts kicking in only where one is invested for long, and wonder starts happening. It is how compounding is said to be 8th Wonder of the World. However, like in any other discipline, not abiding by the rules of the game (investment), may not only seriously jeopardise the expected victory/win, but may also be fatal (like losing one’s hard-earned capital in short term volatility). Remember Dhaka February 23, 1998, on this day, destiny snatched one of promising young Indian cricketers from us. Late Raman Lamba did not follow the rule-of-the-game to put on helmet while fielding at forward short leg and result was fatal.

My advice, therefore, for every existing or prospective investor would be to know and follow the rules/principles of investing before going deep (aggressively) into it. It’s fine to start with a small allocation in the capital market for the purpose of learning, but one must follow the normal prudence. Such an approach will be in line with, Michael Batnick’s saying, “Some lessons have to be experienced before they can be understood.” There may be innumerable rules or principles for investing; technical and behavioural. I would be limiting myself to three most important of behavioural aspects/principles. In any case, these principles are not like ready-made recipes, these must be applied with due care and caution.

No investment discussion can begin without quoting Warren Buffet. The very first principle can be inferred from following quote of Mr Buffet:

“Risk comes from not knowing what you are doing.” So, the first principle is ‘knowledge’, start investing once it makes sense to you by your own understanding irrespective of halo created around the product.

The second principle is ‘Discipline’. Please don’t be impulsive while investing or redeeming. Don’t let short term volatilities spoil your long-term commitments. Remember and follow, Salman Khan’s dialogue in movie ‘Wanted’: “Ek baar jo maine commitment kar di, uske baad to main khud ki bhi nahin sunta.” (Once I have made a commitment, I don’t listen to myself). But take extra-ordinary care while making commitment.

Patience: Before, I deliberate upon this rule of investment, I would narrate the story of ‘The Golden Goose.’ Though the story is meant for children, but it is equally or, for that matter, more relevant to grown-ups as grown-ups can put much bigger things at stake. ‘Once upon a time, there lived a poor farmer. Somehow, he saved some money and bought a goose thinking the goose would produce eggs which he could sell to eke out a living.

The next morning, he went to gather eggs to sell, to his surprise the goose had laid a golden egg. The next morning, he found another egg and the next, and the next. He became richer and richer.

As he grew richer, so did his greed. One day, he and his wife thought if they could have all the golden eggs at one go that are inside the goose, they could be richer much faster. No need to narrate further that his greed overpowered his prudence and he cut open the goose only to fine that it was like any other goose.

The moral of the story is whenever an investment is planned and to be started, there must be some strategies; there must be some timelines; there must be some commitments, which are often unique to each investor. Sticking to those are mantra to succeed.

Finally, I would like to close with a quotation by Daniel Crosby, author of The Behavioural Investor, “Humans are wired to act; markets tend to reward inaction.”

(The writer is Senior Vice President, SBI Funds Management Ltd)

(Translation & Synopsis by Sanjay Kumar Tewari, Executive Vice President, SBI Funds Management Limited)