The art of investment can be learnt better by experience

If doctors can advise on health, and family for happiness, maybe having anadvisor for wealth is not a bad idea, the advisor could be a person or just your own time andexperience

“Bhaari Bharkam Shabdon Me, Ho Sahi Cheej Chhupi Jaroori To Nahin.

Nivesh Sahi Jo Sahaj Aur Saral, Varnaa Koi Majboori To Nahin”

Translation: It’s not necessary that right investment ideas reside always in verbosity.

Invest! not as a compulsion, only if convinced with concept and simplicity.

Recall Boman Irani as Dr Viru Sahastrabudhhe and Aamir Khan as Ranchhodddas Shamaldas Chhanchhad in ‘3 Idiots’ and try to understand the difference in their approach to the life. Just imagine how Virus would complicate a simple chore like ‘Shaving’.

While scientists kept on guessing for years the Einstein’s ‘Theory of relativity,’the Genius himselfexplained the concept in very simple manner through his famous quotation.

“Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for anhour, and it seems like a minute. That’s relativity.” How simple and co-relatable the explanation is!

Even the complex concept like ‘Time Dilation’ and ‘Length Contraction’ can be understoodconsidering the Einstein’s referred quotation.

Let’s try to understand simplicity in the context of investment. As told by Willium Green, the famous writer of ‘Richer, Wiser, Happier’, “intelligent people are easily seduced by complexity whileunderestimating the importance of simple ideas that carry tremendous weight.” And everyone isintelligent in his his/her estimation; hence liable to be seduced by complexity or verbosity. Simpleideas don’t appeal to our ego.

The first and simplest thing is to be getting started. A lumpsum investment can be done with anamount as small as Rupees five thousand only and that an SIP; with Rs 500 only. There is nouse of searching for complex things like valuations, earning projections, market sentiments etc., tostart an investment journey. Investment can be learnt better by experience.

Let’s ponder over a few simple things of investing.

Play your own game

There is valuation based on three or four different models or fundamental or technical or flow analysisand there is what suits you as an investor. Morgan Housel advises to be beware of taking financialcue from people playing a different game than you are. There are experts in the field to guide you,but they may not be able to act on the same guidance on themselves. There is cost of advice andadvice which may cost you.

Set your own benchmark

So, in a complex world of relative and absolute returns, look at what is your target which for most isdefined in certain lifestyle needs and stages. Till you can analyse different types of return on yourown instead of getting influenced by so-called finfluencer, compare your return with the return earnedhitherto.

I once heard from a professor that the opposite of a good thing is …. No, not a bad thing but alsoanother good thing. So don’t think about that 15 per cent return over 3 years is better than 10 per cent return over 5years but think of were you able to achieve something in relation to your goals. A simple index fundinvested for a long time gives better return than taking money in and out of 10 thematic funds whichgo in and out of flavour.

Filter the noise

Another question we often get asked - noise is everywhere and how do you filter? Not an easy one toanswer in a small article but always question with a mindset that what you hear could be true and tryto find evidence to disprove rather than ignore everything or in another extreme follow somethingblindly.

Diversification is a free lunch

Having told in so many words that there is “no one size fits all”, not all 22-year-olds have sameinvestment targets and neither do all 50-year-olds. Also, women may not have risk tolerance differentthan men and may be comfortable with longer time horizons. But there is something which does stayeternal like in a world of no free lunches, “diversification is a free lunch” that almost everybodybenefits from. Don’t put your eggs (at least not what you can lose) in same basket because there israndomness in every aspect of life including investing. Second, most “too good to be true things” areactually just that – too good to be true. And hence coming from the above two golden rules there ismerit in diversifying where you invest and also seeking advice for it.

Having an advisor for wealth is not a bad idea

Health, wealth and happiness – if doctors can advise on health, and family for happiness, maybe having anadvisor for wealth is not a bad idea, the advisor could be a person or just your own time andexperience. Sometimes one hears “no better teacher than time” so give time to wealth which may helpin what you want to do with your time!

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

(Translation and synopsis by Mansi Sajeja, Deputy Vice President, Research &Fund Management, SBI Funds Management Limited)