What the IPL taught us about investing

Cricket is often a great metaphor for life. And we like this newest format of the game, T20, because it can teach us a lot about how to manage our investments. Here are 10 things we have learned from the IPL about investing.

1) Start early: T20 does not reward late starters - teams must start putting runs early in their innings. Otherwise, it can get too late and the batsmen are always playing catch up. Similarly, we must also start investing and saving early.

This allows us to benefit from compounding of capital, as well as allows us to “keep the scoreboard ticking” in order to move closer to our goals. Additionally, we have seen how batting sides take advantage of fielding restrictions early in the innings.

Similarly, early in our innings during our youth we must also take advantage of the freedom to do things that we might not be able to later in life. One of these freedoms is to start building our financial resources when we have very few other financial obligations

2) Risk and Reward tradeoff: T20 is all about taking high risks and ensuring that the team gets rewarded for it – whether its aggressive opening batsmen, or field placing or taking risks in trying out new bowlers. Similarly, finance is all about risk and reward.

One must understand that one cannot get very high returns without taking on risk, just like a batsman faces the risk of being caught at the boundary if he is trying to hit a six. We should not be surprised if we get out trying to reach for extraordinarily high returns on our investments because these are of the most risky kind. Also, just like not every ball can be hit for a boundary, not every investment will turn out to be a goldmine. Sometimes singles are equally important

3) Be ready for the unexpected: In case of rain or weather related delays, the Duckworth-Lewis method gets used and can lead to unexpected outcomes that might be highly unfavourable to one of the teams. The only way out is to have already got enough runs on the scoresheet.

Similarly, our investments must also always be ready to deal with unexpected situations that life might throw at us. We must have enough of a margin of safety to be able to protect ourselves against the proverbial rainy days