With memories of the World Cup still fresh in mind, we being personal finance guys couldn't help but think of lessons that this tournament reminded us about how to manage our personal finances. So, with a sportsman like spirit, do read the following 5 tips. We are sure that many of these will be lessons that all of us will be well advised to apply in our financial lives.
1. Waka Waka:
Shakira's anthemic song is actually a new version of an old Cameroonian song titled Tsamina. The words Waka Waka translate in English to "do it - get the task done".
When it comes to personal finance, inertia is the worst kind of habit. Postponing financial decisions, delaying thinking about important matters such as retirement, or taking things for granted like funding your child's education or marriage are all types of behavior that hurt. Unless one applies some focus to "get the task done" things always linger. Ultimately, the only loser is the person who procrastinates.
All of us lead busy lives and often can't take time out to attend to our finances. Whether its something as mundane as paying our bills and EMI on time, or something bigger like planning for a house purchase a few years down the line, you have to seize the moment - its not just time for Africa, it's time for you to take care of your personal finances.
2. Past performance is no guide to future performance:
Two of the worst performing teams in this World Cup were France and Italy. For those of you who don't remember, it was these very teams that contested the 2006 World Cup finals, with Italy the ultimate winner. Both are pedigreed football playing nations and were sure shot expected to have at least gone beyond the group stage in 2010. Yet, neither one of them managed to live up to their past footballing traditions and failed miserably in the group stages itself.
The stock markets are very similar. Past performance is no guide to future performance in the markets. Yes, this is a statutory warning that we all see on advertising for NFOs and equity offerings, yet most of us seem to ignore this because we are usually too optimistic about the future.
Always remember to keep your thinking fresh. Understand the context within which you are investing to see if you are not falling into the trap of extrapolating past performance into the future.
3. Hype and underperformance:
Many players came into the tournament surrounded by a lot of hype. Ronaldo, Rooney, Kaka and Messi were the pre-ordained stars of the tournament. They were expected to set the competition alight with their dazzling ability to score goals and change the course of a game. None of them really lived up to all this hype. In fact almost all of them underperformed, perhaps with the exception of Messi in the group stages. This quartet barely scored enough goals collectively to match the individual number of goals scored by less famous players like Forlan and Muller. Sure the quartet is super talented, but if you had placed your money on them you would certainly be poorer.
In the investment world as well, there are times when there is a lot of hype surrounding certain sectors or stocks. History has shown that these are the areas that inevitably end up underperforming - for instance, who can forget tech stocks from the tech bubble years or real estate stocks from just before the global financial crisis occurred. In fact, a tried and tested way to earn returns is to invest in the neglected and non-consensus sectors and stocks that are being ignored by the vast majority of investors in the market. Just like nobody expected Forlan and Muller to be among the top scorers of the tournament, chances are that there are a lot of under hyped names in the market that will be the best performing stocks in 12-24 months time.
4. Vuvuzelas and background noise:
Right from the first match of the tournament, the buzzing sound of thousands of vuvuzelas was never far away. Whether it was TV viewers or those lucky enough to attend the games in the stadium, most fans were irritated by the collective noise of these vuvuzelas. This noise was deafening enough to act as a distraction to the real action on the playing field.
The stock market is also full of noise. Minute by minute reporting of every tick up or down of stock prices hardly has any bearing on the long-term operating fundamentals of the business. Yet, every small move is made into a big deal by different media. Numerous experts give their definitive views on which way the market is going to move tomorrow. If they knew wouldn't they all be billionaires by now - so many of these so-called experts are just blowing their own vuvuzelas.
Professional investors, just like professional footballers, have habitually learned to ignore the background noise. They recognize that the market is full of distractions. We also need to block all the surrounding noise in the stock market. We must select an investment philosophy and stick by it rather than being distracted away from it by experts and their vuvuzelas.
5. Even superstars need coaching:
The who's who of world football was playing in the tournament. Many players are national, if not global, superstars. Yet, despite their natural talent and skills, they were all handled by a manager and his staff who were constantly coaching all the superstars, monitoring their performance and conveying tactical instructions to their teams on the pitch. No one was above being coached.
Similarly, while many of us might think that we are experts in managing our finances and feel like we have world class investing skills, it's always useful to have a financial coach or advisor. Such a person can monitor our situation and suggest useful changes to us so that we can improve our financial performance. Financial advisors can help in identifying certain areas where we might be taking on too much risk, or areas where we are not using our resources to our advantage.
Happy Investing !!!!!!!!
Source : http://www.itrust.in/hot-topics/archived-hot-topics.action
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