For millennia, the Mahabharata has helped provide guidance whenever the need arises in life, relationships, or business. Mahabharat anecdotes are also taught as case studies at top business schools in management and strategy courses.
In this blog, we will discuss 5 key investing lessons from the Mahabharata that can be applied to your investment and financial habits.
1. A Large Portfolio Without a Strategy is Destined to Fail
Lord Krishna has Narayani Sena (size) vs. Himself (strategy and knowledge) to both Arjuna and Duryodhana. While Arjuna chose only Lord Krishna for his intelligence, Duryodhana chose Lord Krishna’s army. Arjuna planned for the long term and valued strategy over the size of the army, while Duryodhana thought only short term and thought his victory was certain if he had more men. However, with each passing day, the Kauravas were put to rest as the Pandavas emerged victorious largely due to the strategic planning and leadership of Lord Krishna.
Similarly, when investing, you need a strategy to deal with constant market surprises rather than a large group of funds that may not follow your risk profile or goals. While 2017 saw an uptrend, 2018 and 2019 saw a sharp decline. For an average investor who would have been looking for a relatively safe ride with reasonable returns, investing in multiple equity funds would not have helped as most of the equity funds gave negative returns during this 2018-19 period. Rather, asset allocation-focused funds such as a . a strategic move to be Balanced Advantage Fund, which changes gears in response to changes in the market – could have been a winner by taking advantage of market volatility during this period, yet still delivering reasonable returns. Equity funds eventually made a strong comeback in 2020, but at that time having the right strategy to deal with market volatility was more important to achieve their desired goal of low risk and stable returns.
2. Being Emotions Blind Doesn’t Make Good Investment Decisions
in the game chaupariEmotional prejudice caused Yudhishthira to repeatedly place bets and lose. He had to gamble and lose his wealth, kingdom, brothers and finally, his beloved Draupadi. This investment lesson from the Mahabharata shows how the gambler’s fallacy, an emotional blind, can lead to poor decisions that ultimately lead to ruin.
Emotional mistakes are common in investing, too. We all know that markets can be very unpredictable and the best of us can be hasty, driven by emotions like greed or fear. Take the case of March 2020. While the markets were bullish only a few months before the COVID-19 lockdown, the Indian market went into a tailspin with a fall of almost 30% in a month’s time. Many investors (especially those new to the market) succumbed to the fear of further losses and sold out in a hurry. In just 20 months (October 2021), the market has not only reclaimed full losses, but has also returned over 100% of supply from its March 2020 lows. Having a long-term view and discipline of not looking at NAV or your portfolio valuation for at least one or two quarters at a time can help you avoid emotional decisions.
Keeping a close watch on your portfolio and fund NAV is useful, but if the market is going through a rough phase like in 2020, it can shake you up. Reviewing portfolio performance and asset allocations Once in six months or annually Can be useful and help avoid mistakes made by emotion. Discipline and patience are your best friends against emotional investing mistakes,
3. Make stable investments but have an exit plan
This important lesson from the Mahabharata can be applied to life and investment alike. Abhimanyu knew the entry strategy but had no exit plan. they entered Trap:Won in the beginning, but paid off with his life in the end.
Similarly, in investment parlance, there are many entry strategies – lump sum investing when you feel the market is low or investing in a disciplined manner through SIP (Systematic Investment Plan). While you may be able to schedule or plan your entry, it is also important to know when and how to leave. As they say, it’s always better to go higher. But to time the markets so high is one of the most impossible things to do. This is where an exit strategy in the form of asset allocation and goal-planning can help. Having well-defined targets and time-frames will help you book profits in equities whenever they are at a high level and start moving to the safe shores of debt shortly before your target is achieved.
For example, when you are planning to retire at the age of 60 and have been investing for 10 years or more, who can predict whether the equity market will be that good at that time or not. Gradually reducing your equity exposure by periodically shifting some of the gains to debt funds before your target date (eg, at age 57) can help preserve most of the gains. This may result in slightly lower returns for your target these past few years, but will significantly reduce the risk of losses due to a sudden market downturn (like the one that happened in March 2020).
Another important strategy is regular portfolio rebalancing. It follows the mantra of “Buy low, sell high”. Basically, for this you need to stick to your asset allocation (like 70:30) with 70% in equity and 30% in debt funds. Whenever equity is high, say 80%, sell excess and invest in debt. When the market is low and your equity allocation is down to 60%, sell debt funds and invest in equities. This allows you to invest when the markets are low, book profits regularly and grow your money more consistently.
4. Overconfidence in past performers can be harmful
The famous mutual fund tagline states – Past performance is no guarantee of future returns. Similarly, Duryodhana was always so sure about his victory in the battle of Kurukshetra as he had a massive number of warriors along with Dronacharya, Karna, Bhishma Pitamah and many other top warriors. Narayani Sena from Lord Krishna. He was so blind and overconfident with the aura of star warriors’ credentials that he didn’t even consider the prospect of defeating this all-star cast of Lord Krishna and Arjuna.
Investing in funds that have shown strong returns in the past or are run by star managers or even top-rated ones can make you feel overconfident. Since markets and performance are cyclical, it is important to look for more consistent funds and fund managers who are not the protagonists of a certain market phase. Higher returns in some years may hide the risk of poor performance of that fund or in earlier years. These can be discovered using the various ratios used. Measure risk in mutual funds Such as the Sharpe Ratio (this shows risk-adjusted returns) or the Sortino Ratio (downside risk-adjusted returns) or even the Information Ratio (shows how much additional return the fund has earned for the additional risk taken). These data points are readily available on various financial websites. To build a resilient and consistently performing portfolio, simply look for four main characteristics in a fund – a. Consistency of returns, b. Ability to deliver additional returns for each unit of additional risk, c. Ability to hedge downside losses during market corrections and d. Ability to reduce volatility.
5. focus on yourself Goal and Discipline Investing
During the princes’ archery training, when Dronacharya placed a wooden bird on a tree as a target and asked all the princes what they saw, only Arjuna replied, saying that he saw only the bird’s eye gives. This quality distinguished him as a disciplined warrior and the best archer of the time.
Similarly, you should have focused goals for your investment portfolio and not be distracted by market noise. If you are investing through Systematic Investment Plan (SIP) And a sluggish market has a long duration, don’t get discouraged and stop your SIP. When the markets change, and they always do, your discipline to continue with your SIP can reward you handsomely. This is because equity markets are never linear (they do not move up or down in straight lines). They can remain dormant for long periods of time and suddenly move very rapidly, making up for lost duration in just a few days.
Having clearly defined financial goals for your portfolio will help in identifying the best suited funds for your portfolio. There are more than 15 categories of mutual funds and more than 800 mutual fund schemes. All you need is a few plans, which are best suited for your financial goals.
While there are many more lessons to be learned from the Mahabharata, some of the most important (especially in life) are about controlling your emotions, which is right (Religion), and fighting for it. In real-life investing and finance, this means setting clear financial goals, periodic asset allocation and portfolio reviews, having a strategic plan to achieve your goals, exiting the market without risking your hard-earned money and investing in the past. Don’t fall for the demonstrations. of mutual funds. These are some of the key lessons that will help you save and get more out of your investments and feel more confident about becoming completely self-reliant and empowered.
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