Value Investing in India and Its Cricket Connection

8 Mar 2021by Aditya Anand Bapat

Value Investing in India and Its Cricket Connection

Indians have two national obsessions – movies and cricket. Movie viewership is a bit fragmented -- with one or more out of regional, Bollywood and Hollywood preferences. In South India, local movies are watched with much more love and affection than Bollywood or Hollywood movies. In Chennai, far more people would’ve shed tears when Velu Naicker (Kamal Hassan in “Nayakan”) died at the end of the movie than those who applauded when Bhuvan (Amir Khan in “Lagaan”) hit a six at the end of the movie to defeat the British team.

Passion for cricket is much more unified. The entire nation prays when Virat Kohli or Rohit Sharma is on 99 runs or when India needs 4 runs in 2 balls to win. The whole of India was in tears when Sachin Tendulkar gave that emotion-laden retirement speech at Wankhede. As they say, “Cricket is our religion, cricketers are our demi-gods”.

The point we are trying to drive is that Indians are more uniform in their love for cricket than their love for movies. Hence, we will be using cricket to drive forth points regarding good investing habits! Anything to do with cricket makes for interesting reading and viewing for all of us Indians! And I’m sure you’ll love to read this one as well.

There are some amazing similarities between a cricket team and your portfolio! Why not take lessons from your biggest passion and apply them to your investments, to your benefit?

Value investing in India or cricket - choose your team wisely

A cricket team has 11 playing members, which includes 4-6 batsmen, 1 wicket-keeper and 4-6 bowlers. The total adds up to more than 11, you might say; but that’s because some are all-rounders. Also, the wicket-keeper could double up as a batsman as well. Your team needs to be balanced with respect to the nature of the players – aggressive, cool-headed, some players who can handle pressure situations well and so on. You can’t have four Rohit Sharmas in the team, there have to be some Hardik Pandyas as well. There should also be a good balance of experienced players and young, emerging players. Apart from Dhoni, Kohli and Bumrah, you have to give chance to the likes of Ishan Kishan, Mohammed Siraj and Devdutt Padikkal.

Similarly, your portfolio should have the right mix of stocks – aggressive, defensive, balanced, etc. There has to be a mix of Large, mid and small caps as well. So don’t pile up too many Asian Paints-like stocks; they are wonderful stocks to own, but add an occasional V-Mart or Suprajit Engineering to the portfolio to get that Alpha. Today’s small caps will be tomorrow’s Mid caps and Large caps. So go for an optimum mix. Have a portfolio that is diversified across sectors, Beta and Market Cap. Click here to invest in a multibagger portfolio of 20-25 winning stocks.

(Please note that the names of stocks in this story are only for illustrative purposes and are not Buy, Sell or Hold recommendations)

All will not perform well – that’s a given, live with it!

Ever heard of a cricket match where 500 or 600 runs were scored in 50 overs? Never! There’s a reason for that. Not all players perform their best on a given day. One or two or three batsmen will play a big knock and 1-2 bowlers will take a good number of wickets. A team is selected on that basis only – that failure/under-performance of some players will be offset by out-performance of others. That is what makes a winning combination!

A portfolio is also structured with similar assumptions – that not all stocks will be multi-baggers. There will be consistent performers that will compound at a steady rate, cyclical stocks that will rally as per the commodity cycle and mid/small caps that will grow at a healthy rate to become multi-baggers of tomorrow. You need to ensure that you sufficiently out-perform the benchmarks over a respectable time frame (5 or more years).

Quality comes at a price…….Ask IPL team owners!

During an IPL auction, players are bought and sold at a price. The player who has an established track record and several years of experience behind him, fetches a higher price. Some players fetch a higher price despite being newbies. That’s because team owners think that these could be tomorrow’s stars and prove valuable to their team. At such times, team owners look at the potential of the player, his track record at lower levels (domestic, state, zone, etc.) and extrapolate it to (likely) future performance. If a player bought at relatively lower price performs well, the owners strike gold. This buy/sell game does get irrational at times, with owners paying ridiculous prices for players.

Similarly, stocks are valued based on their past track record, future outlook and management quality, besides other factors. Valuations are higher for stocks which are consistent performers. Certain smaller stocks or newly listed companies may also see spurt in valuations, if investors feel that they are potential future winners. Valuations can get tricky for inexperienced (and sometimes even experienced) investors. Hence, you may need expert advice to help you separate the wheat from the chaff.

That century he just hit didn’t take him 2 hours, it took him 10 years

When watching a cricket match, we often applaud a player (rightly so) when he bats or bowls brilliantly. We appreciate the player for the wonderful innings he played and the wonderful time we had watching the match. We marvel at Sachin Tendulkar’s straight drive, Rahul Dravid’s cover drive, MS Dhoni’s near-perfect wicket keeping or Jasprit Bumrah’s beautiful Yorker. What we forget is that the feat didn’t happen in two hours, it took more than 10 years. Players spend years perfecting their game, sacrificing their personal and family time to give you the entertainment and joy that you so desperately seek. They took no shortcuts; it was sweat, blood, pain and sacrifice all the way.

It’s the same for portfolio performance and stock picking. The returns generated by fund managers are a result of years of reading, learning, making mistakes, spending sleepless nights and sacrificing personal time to make clients richer. There are no shortcuts there. You may occasionally land up with few stocks that give you fantastic returns, based on hearsay. But sustained outperformance doesn’t come with a “fluke”, it takes years of effort. So the next time your fund manager generates market-beating returns over 5 years, remember it is not just 5 years of effort but 15 years of toil. In cricket, in investing or in life, always remember – “You will certainly fall, it is important to get up and get going”.

Playing cricket / value investing in India is very easy……..everyone is an expert!

In India, there are more than a billion cricket experts!! If a batsman hits a wrong shot and gets out, or a bowler bowls a bad spell and gets hit outside the park, or a fielder misses an opportunity, every Indian will have his/her opinion on how it could be avoided. In fact, people even know the outcome of a match before a ball is bowled (of course, in hindsight)!! “Mein to bola tha, xxxxxxxx ko liya to haarna hi tha”, “Mein to bola tha, toss haara to match haarega”, “Are isko batting/bowling nahi ata, aisehi liya hai team me”. These are common dialogues that anyone from a 10 year old to an 80 year old will have. In reality, players and team management know the best approach; to cut through the noise and free advice, and focus on playing the game to their best potential. No one can predict the outcome of a game, the key is to give your best in each and every game.

Even on D-street, you’ll find a lot of successful (hindsight) advisors. People who claim they bought Balkrishna Industries when it was sub-Rs. 100, or those who “always knew” that xxxxx Ltd would be a multi-bagger. There are many such “geniuses” who regularly give “priceless advice” to gullible investors. The key is to stay away from such geniuses. Either do your own research or approach good advisors (such as Research and Ranking). We don’t promise to make your portfolio 100xs in 5 years, but we can assure you we’ll offer market beating returns, if you invest with us for a long enough period (5+ years).

I’m sure you enjoyed reading this one. Hope it wasn’t a “bouncer”, and you didn’t feel that I was making a “silly point”. Don’t let short term fluctuations bowl a “Googly” at your portfolio performance. Wish you a very long and fruitful investing “innings”.

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