By Anand James
THE FOCUS ON RETURNS
Investment today is all about benchmarking. Portfolio returns are compared with other assets, indices, or other investment opportunities. Or even with what would have happened had you just kept all the money under your pillow. It is fair though, to imagine that fewer people today, are holding on to cash especially after the demonetisation drive, so, the risk free assets like bonds or bank deposits could be ideal assets for comparison from that angle. So assuming that your portfolio raced with risk and return as the other competitors, what would the winner take home? Risk adjusted return?
It is true that, as nobody knows about the future purchasing power of money of the invested sum, our best bet today is to make our money work, as good as it can. But the fixation over returns often comes at the cost of losing a bit of perspective regarding the value of investment. For example, if your returns are the same as your neighbour’s, which, say, is similar to just about anybody’s, if all invest in the same funds or assets, in similar amounts, how then do you stay ahead?
Staying ahead has two parts: One, making intelligent decisions through the investment period, and two, making intelligent decisions about the money secured at the end of the investment period. Technology spares us the job of finding brilliant investment ideas, so “intelligent” basically means “meaningful”.
Let us look at two off beat thoughts to stay afresh in the investment race. For an investment cycle to be robust it is utmost essential for the consumption cycle to be meaningful.
PAUSE
Successful stock investment is about understanding the mood of financial markets, gauging the potential risks, and picking market bottoms and rallies and timing the exit. Or in other words, convert fear and greed into investment opportunities. How successful can we be, while at it? And how often can we be successful at it?
A recent research done by University of Tasmania investigated the body’s ‘famine reaction’ to continued dieting and its impact on weight loss in men with obesity. The study came up with revelations contrarian to common logic, and showed that taking a two-week break from dieting may improve weight loss. This is because, dieting altered a series of biological processes in the body, which led to slower weight loss, and possibly gain. So, if intelligent investments are what you are running after, then it makes sense to step back for a while, refrain from active stock picking activities so that the mind is fresh on resumption. On the same token, it also makes sense to take a few paces off your spending spree, though the angle is not as much as about cost reduction, as much as it is about meaningful consumption.
GROW A PLANT
Growing a plant is a familiar theme with investors. The idea of watering a plant, and watching it grow is often used to explain the benefits of regular investments, especially SIP based investments, and the joy of watching them grow like a plant would. But, the necessary theme is not as much about growth, as much as it is about the process. The process involves, understanding where the sun is through the day, identifying an ideal spot and growing season, preparing the land, procuring the best seeds, taking care of the seed and sapling during the germination stage, regular watering and fertilization, and tending to the risks, by way of pest attacks, diseases etc. Time consuming; yet a rewarding experience. The crowning jewel of this experience is not the fruit or the flower of the mature plant, but the questions that it asks of us.
Could any of these processes be done better? And more importantly, was the fruit of the labour rewarding? Did you end up with a fruit, though you wanted a vegetable? Did you end up with too few to make even a curry?
A process cannot be rewarding enough if the final fruit is not meaningful, and that is the most essential theme.
The essential theme of both ideas is to arm ourselves to make ‘meaningful’ investment decisions. So, plant a seed, and remember to fast regularly.