PERSONAL/ FINANCE SPECIAL ...................Money lessons from the World Cup

Money lessons from the World Cup



Small investors can gain invaluable financial wisdom from what's happening in the 2014 football World Cup.

Unless you are into betting, there may seem no link between the football world cup tournament and your finances. Yet, it has some invaluable money lessons for small investors. Whether you have a passing interest in the beautiful game or are among those who sleep through the day to watch it at night, you can learn a lot from what's happening in Brazil.

PAST IS NOT THE FUTURE

 Defending champions Spain have displayed brilliance in various tournaments recently.
But, where are they in the 2014 world cup points tally? Nowhere. They are out of the tournament. And, nobody saw it coming.

Similarly, a mutual fund or a stock's excellent performance in the recent past is no guarantee of good returns in the future as well. The past performance of a stock or a mutual fund should only be one of the guiding criterion to evaluate its prospects. Is the stock overvalued? Has the company taken more debt on its books? Has the fund underperformed its benchmark? Answers to such questions can tell you where it is headed. Spain's exit has proved that short-term performance does not decide what the future holds. So, research prop erly and take cues from the past.
But do not blindly invest because a mutual fund, stock or sector has done very well in the past. In fact, sectors tend to move in cycles. It has been often observed that the previous year's best performing sectors are at the bottom of the heap the next year.

KEEP EMOTIONS AT BAY

 In the Germany versus Portugal fixture, Portuguese defender Pepe got carried away by the heat of the moment and head butted Germany's Thomas Mueller. He was shown the red card and the 10-player Portuguese team lost the game to Germany. When investing, you have to rein in your impulses and keep a check on your emotions. Be a bit less emotional about your posses sions and be willing to sell off when the price is right. Do not hold on to your stock if its value is getting eroded. If you have made such mistakes in the past, do not repeat them. Pepe had been red-carded in several past games, yet he allowed emotions to get the better of him. You would do well to avoid holding on to a portfolio that is losing value in the hope of a future miracle.
The key is to cut your losses, not to avoid them altogether.

SCIENCE OF SUCCESS

 In Algeria versus Belgium, the former scored a stunning goal in the first half of the match. It couldn't have started any better for them. Overconfidence, however, led to their eventual defeat.

If you picked a random stock and it performed exceedingly well, that does not mean that you are a good investor. It may have been just a fluke. And, it won't be long before you burn your fingers. One good stock pick does not make you an expert. Be scientific when investing in equities. If you do not have the time and the expertise, the mutual fund route is always a better option.

CHOOSE CONSISTENCY

Spain might have been ousted of the world cup, but Germany is very much in the game.
Also, it has been one of the most successful teams at international competitions. It has won three world cups and three European championships. It has been a consistent performer. In World Cup 2014, the team's good show continues with its recent victory against Portugal.

Just like Germany, a mutual fund or a stock that has been delivering consistently over a long period of time is always a better bet than its peers. Look for 10-year returns of mutual funds and stocks to determine their consistency. They can be your best bet. Resist the urge to invest in get-rich-quicker schemes. Choosing consistent performers over rising stars is always a better bet, especially for those with limited income and a low risk appetite.

SHREYA KOHLI ETW140623