Investing is like Test cricket and investors should aim to be like the tenacious Rahul Dravid - combine technical abilities with behavioural skills to achieve outsized success, says a new book.
Test cricket and investing in Indian equities have interesting parallels, an appreciation of which can help newcomers understand the process of investing and the toolkits required to build a durably successful investment portfolio, it says.
In "Diamonds in the Dust: Consistent Compounding for Extraordinary Wealth Creation", Saurabh Mukherjea, Rakshit Ranjan, Salil Desai offer Indian savers a simple yet effective investment technique to identify clean, well-managed Indian companies that have consistently generated outsized returns for investors.
Based on research conducted by the award-winning team at Marcellus Investment Managers, the book, published by Penguin Random House's Penguin Business imprint, uses case studies and charts to help readers learn the art and science of investing in the $3 trillion Indian stock market.
The book also seeks to debunk many notions of investing that have emerged from the misguided application of Western investment theories in the Indian context.
Peak performance in Test cricket requires not just technical proficiency but also intelligence and immense powers of concentration, the book says.
"In that regard, Test cricket and investing in Indian equities have interesting parallels, an appreciation of which can help newcomers understand the process of investing and the toolkits required to build a durably successful investment portfolio," it says.
The greatest investors, like the greatest Test cricketers, are a combination of strong technical skills and a growth mindset, it says.
The authors say Dravid's success was driven as much by his behavioural traits as by his technical skills and in this regard, "he is a great role model for aspiring equity investors".
According to them, many people perceive investing as something involving constant action, including watching share prices all the time and reacting quickly to news flow and market movements.
The general belief is that such 'active' investing yields result in the immediate future, they say, adding it seldom works like that.
"Investing is not like a T20 match where you attempt to hit every ball out of the park. It is more like Test cricket, where you do not even attempt to play every ball, let alone try to hit it to the boundary," they write.
The key to successful investing, therefore, is to first leave the risky stocks alone, then to identify the ones that can grow earnings and cash flows steadily, and once you find such stocks, to bet big on them, the book says.
Also, as in Test cricket, investing requires the player to not just possess the relevant skills and training but also the mental conditioning and discipline to apply those skills and training consistently, it says.
"More crucially, investing requires the patience to play a long innings, which, as in Test cricket, is the assured way to victory. The difference between successful and unsuccessful investing is, in many ways, the difference between Test cricket and T20." The authors say that over the last few years, there has been a growing realisation among Indians that their life's savings, the bulk of which are parked in physical assets like real estate and gold, are unlikely to help them generate sufficient returns to fund their financial goals, including retirement.
At the same time, many have lost their hard-earned money trying to invest in financial assets, including debt and equities.
"Such losses have occurred due to many reasons, such as corporate frauds, weak business models and misallocation of capital by the companies in whose shares unsuspecting investors parked their savings."
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