It’s a hot and humid day in April, the stadium is packed with forty-two thousand people roaring with support for India to win the match. The captain, Mahendra Singh Dhoni, is staring down at the cricket field contemplating his strategy to win the World Cup final.
The pressure is on, India has only once before won the World cup as a host country. The opening batsmen Virender Sehwag and Sachin Tendulkar have been dismissed early by the formidable Sri Lankan bowler Malinga and the third batsman, Virat Kohli, is also out by the twenty second over. What is Dhoni’s strategy going to be?
The captain stayed cool under pressure. He promoted himself up the order and, along with Gautam Gambhir and later with Yuvraj Singh, played a very simple strategy of slowly taking singles and doubles for every over that was remaining. Every once in a while, he shot out a four or a six that set the crowd roaring. And then, at the end, he sealed his victory with a cracking six that will be remembered for a long time in Indian cricket history.
For a cricket team that is batting in the second innings, there is a target number of runs to chase and a number of overs within which to meet them. Similarly, financial goals can be broken down into a target value and a time horizon. How would you define your investment strategy thinking through the cap of a cricket captain?
When planning the batting line-up, it is very important to first consider defense. If your team gets all-out in the first 10 overs, then there is no chance that you will win the match. You need a Rahul Dravid like “Wall” to ensure that you are still in the game. Similarly, in investing, you need to first ensure that you protect against emergencies that may pull you down financially. Maintaining an emergency fund, having adequate insurance and paying off high interest debt go a long way to give you peace of mind and put you in the driver’s seat of your own financial life.
Next up is the offense. You may choose to save your money in the bank and in fixed deposits. This is good and equal to the singles and doubles that batsmen take; necessary to play the match but, in some cases, may not be enough to win it. The match winners are the fours and sixes; and in investing they would be your mutual funds. But you have to be careful with these: when going for a four or six, you could also very easily get bowled or caught out like Sehwag did in the World cup.
Careful and prudent planning using a judicious mix of ones, twos, fours and sixes will give you the winning combination. So, captain, how will you plan your strategy?