Investing Lessons I have learnt from The Mahabharata

In the epic Hollywood flick The Wolf of Wall Street, Jordan Belfort says,

I’m a student of history, and I’m a firm believer that he who doesn’t study the mistakes of the past is doomed to repeat them.

I have already written about why this quote was the biggest lesson I learnt from the movie and so, will not bore you all with repetition. I am also sure that you must be thinking that Dev has lost his mind as title of the post refers to ‘Mahabharata’ and he is writing about a Hollywood movie. But I promise that I will shift gears shortly… 🙂

The quote highlights the importance of Studying the Past. Not just in investing but also in one’s personal and profession life.

Studying the past helps us understand why other people succeeded, and more importantly, failed.

When it comes to investing, you can and should study the past to see how markets performed when people were either blind-eyed optimists or irrational pessimists (here’s how?)

Now lets take a step towards connecting this Hollywood movie quote with Indian mythology. 🙂

I am a twitter addict (proof). I like the idea of saying meaningful things with least number of words. And Twitter forces us to do just that given its 140-character limit. I follow quite a few people on Twitter. But there are very few people who use this limit to perfection. One such person I follow is Yamini Sood.

Yamini is a self-confessed Twitter addict who also happens to be working as a Vice President at DSP BlackRock Mutual Fund.

I have come to respect her a lot through her tweets about investing and personal finance. Her tweets are both wise and witty – a rare combination. So I decided to reach out to her to see whether she would be interested in writing something in long-form (140+ characters).

And I am happy that she accepted my offer.

Since I started off this post with a reference to learning from past mistakes, here is a guest post that Yamini wrote. And as you must have already guessed from the title, its about what Mahabharata can teach us about Investing.

So over to Yamini… and this is how I finally connect the quote from Hollywood movie to Mahabharata, through the idea of ‘Studying the Past.’ 🙂

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Dev had offered me to write a guest post for his blog. I tried to tell him I am lazy, to which he said that would mean I am a good investor.

I am positively optimistic that he will do well in a sales job. He knows how to use the ‘You attitude’.

I will borrow Jason Zweig’s thought here, who says that there is limited financial wisdom and I am paid to write the same things differently every time. Dev already does a fantastic job in spreading financial wisdom through his blog and tweets.

I just had to find a unique way of saying the same things differently without getting paid Alas! So here it is…. Investing lessons I have learnt from The Mahabharata:

Mahabharata, one of the greatest epics written by Rishi Vyaas is a known name amongst Indian households. Did you know that one of the greatest superstitious beliefs attached with Mahabharata is that it should not be kept or read at home as it can cause faction in the family?

Nevertheless, it cannot stop us from taking away a few key lessons to help us become better investors.

Mahabharata is essentially the narrative of a war between the Kauravas and the Pandavas; the good and the bad; the virtuous and the vile. When it comes to investing, this good and bad is within us.

It lies in our behaviour, actions, emotions and restricted knowledge. Let us look at a few situations from its manuscript and what they teach us. Each point is a topic in itself, but I prefer you attentive over sleepy when you read this, hence keeping it short.

Diversify – Asset Allocation

Draupadi in her previous birth had asked Lord Shiva for a boon. She had asked for a husband who should be righteous, brave, accomplished, handsome and intelligent. Shiva said that it was impossible for one man to have all these qualities and hence she will have five husbands. Yudhistra was the righteous one, Bheem was full of strength, Arjun an accomplished archer & warrior, Nakul was famous for his looks & Sahdev was intelligent, the strategist.

Stop before you get the wild thought of having more than one spouse.

Remember!! You are already finding it difficult to afford one and unfortunately, we are talking about investments not your escapades. It will be impossible to get all the desired qualities in one asset class.

I have seen vociferous propagators of equity, real estate, etc. with zero faith on any other asset. Something I have never liked nor understood. An average investor like you and me is better off diversifying.

It is important for your portfolio to have safety of debt, returns of equity, steadiness of a debt-free house and tiny comfort of gold.

What is required is to identify your needs, goals and then appropriate accordingly to the different assets. Mutual funds offer a great start for beginners to help diversify across fixed income, equity, gold and various categories further within. So, do yourself a favour, consider asset allocation your religion and practice it for good.

Monitor your portfolio regularly but more importantly give time

Shishupal, the cousin of Krishna was destined to die at his hand which was a known fact. Shishupal’s mother asked Krishna for a vow to pardon his 100 mistakes before killing him, to which he agreed. During the RajSuya yagya being conducted at Indraprastha, Krishna finally killed him with his Sudarshan Chakra after pardoning his misdemeanour for 100 times.

This point is very important, as in stocks we tend to get rid of our winners sooner in the name of profit booking and stick to our losers. There is also a large set of typically mutual fund investors, who dispose their losers way too early. The point to be emphasized is that we just don’t give enough time to our investments.

If you have a Shishupal in your portfolio, you have to pardon it for a while, not for 100 years but at least 100 weeks. Your mutual fund scheme may underperform for a year or two or three, give time till you decide to discard it.

Ensure the investment objective or theme is still in line with the objective when you invested in the fund. If yes then you can hold on, if not, then you can try to behead it from your portfolio just like Krishna’s cousin.

Keep it simple and resist the allure of ‘Gambling’

Shakuni was an expert at the game of dice. He conspired to call on Pandavas to Hastinapur and then helped Duryodhana win the game of gambling against them. Yudhistra not just lost his kingdom and other assets but his brothers and wife too. On being restored their wealth by Dhritrashtra, they again lost everything in the second round and were sent to exile for 13 years.

I love to say this, in the investing world if it sounds too simple; it probably is the right approach. People ‘invest’ in all sorts of fancy products, alternate investment strategies, hedge funds and derivative instruments just because they sound complicated, look exotic and promise a great ‘alpha’. They get enticed by them just like Yudhistra was enticed to the game of dice. And then multiply worries over wealth in the bargain. Don’t let the Shakunis (read toxic products) allure you in the investing world.

Simple plain vanilla mutual funds, direct stocks, PPFs, Bonds etc are your best bet. Buying fancy products are a lot like buying fancy lingerie. The simple ones are good enough but the fancy ones add erotica with abysmally limited utility.

Never get into things you do not understand

Abhimanyu, the son of Arjun & Subhadra had entered the Chakravyuh (man-made maze on the battle field) with partial knowledge of breaking it. The background is that when in his mother’s womb, Arjun was narrating how to break the Chakravyuh to Subhadra when half way through the story, she fell asleep. Abhimanyu thus could not learn the full technique yet entered the Chakravyuh and got killed, as he could not exit the same.

Most men still spend time trying to understand the woman in her life and worse, they get married too but that’s the story for another day. Try to understand where you invest.

If you are a DIY (Do it yourself) investor, know the products, costs attached, tax implications, liquidity, counterparty risk and much more.

If you still cannot or do not understand, hire someone who will do it for you. Hire a financial planner – your Krishna, the Sarathi – the Mentor (Caution: You gotta be lucky in finding a good one. This is the most difficult part).

The good part is that you are out of the womb and the financial Chakravyuh ain’t difficult to break given the wealth of information available in today’s world online. The sad part is Well! After all this, you still won’t be able to understand the women in your life.

Learn, Learn, Learn: Yourself and then Others

Eklavya was a young prince of a jungle tribe who was greatly interested in archery but was refused by Dronacharya as a disciple because he was a Kshudra (scheduled tribe). He then driven with his zeal to learn, created the guru’s statue and within some time grew up to become a great archer all by himself. He had mastered himself in the archery skill. He was eventually asked for his right thumb as guru dakshina by Dronacharya to ensure that Arjun remains the best archer.

Only if Eklavya was born in this era, he would have been happy to receive the training under reservation quotas. Alas! We had no elected politicians than just a handful of rulers.

So make an effort to learn. We remain students in this world till we enter our graves. And it is never too late. Financial literacy should begin in school but nevertheless do not get intimidated by the financial jargons. Learn your own behaviour, psychology, risk appetite before you try to study the markets.

Self-learning is the best tool in your kit. Eklavya could do it without internet; You tube videos, workshops, blogs and books, what is your excuse?

Goal Based Planning

During one of their training sessions, Dronacharya took the young princes to an open area. There on a tree was hanging a wooden bird. The task was to shoot its eye from a distance. Guru, asked all disciples on what they could see while aiming at the bird. Everyone answered seeing the bird, trees, its feathers, ground, etc. Arjun answered that he could only see the bird’s eye which had to be shot and nothing else. He also successfully brought down the bird with one arrow.

Know your goals, identify and then stick to them. The trick is to not waver from your goals and not lose sight of them, come what may. Different spending needs require different time horizons (sic) different investment products.

Ignore the noise. Ignore the market theatrics. Ignore 24 x 7 news channels.

Monitor your portfolio periodically but not daily. Focus on your long-term investing goals and stay disciplined over market cycles. Rupee cost averaging aka SIP is one great tool to inculcate that discipline by overcoming emotions.

So to help you over your lifetime of wealth creation you may need to remember some of these thoughts and most importantly you will need some marijuana or long walks for all those days when you see deep reds or secular greens to resist unnecessary temptations for actions. Try to behave differently from what you are tempted to do. Like Charlie Munger inspired by the great mathematician Jacobi says,