Investments & Markets

Here are five investing lessons from Vijay Mallya

Investing lessons from Vijay MallyaBCCL
Investing lessons from Vijay Mallya
By Hiral Thanawala

Even as Kingfisher Airlines proves to be Vijay Mallya’s undoing, there are several personal finance lessons to be learned from the missteps of this once highprofile liquor baron.
Don’t let emotions dictate investmentsBCCL
Don’t let emotions dictate investments
Mallya was heading a successful businesses group before he launched Kingfisher Airlines. He had no previous experience in the field and aviation is known to be a difficult business. Yet, Mallya took the plunge. Lenders and shareholders of Kingfisher have paid a heavy price for this vanity.

Investors should not get lured by seemingly attractive assets, especially real estate, new-fangled derivatives and other exotic financial products. Derivatives are meant to hedge portfolios, not to speculate.

The futures segment entails very high risks and has been described as a weapon of mass wealth destruction by Warren Buffett. Ordinary investors should stick to investment options such as PPF, fixed deposits and mutual funds. Flights of fantasy, inevitably lead to a Kingfisher like crash.
Overconfidence ruinsBCCL
Overconfidence ruins
Hubris has played a key role in Mallya’s fall from grace. Just because he had done well in other businesses, Mallya was confident that Kingfisher Airlines would also succeed.

Small investors should not fall for the overconfidence bias if they make money from some of their stock picks. Overconfidence makes lay investors put money in stocks directly, instead of taking the services of a mutual fund manager for a small fee.

If your investments have done well in the past, was it because of an informed choice or some ‘tip’, pure luck or sheer coincidence? Trusting an expert is always a better option.
Don’t live on debtBCCL
Don’t live on debt
Even though Kingfisher Airlines was not doing well, Mallya continued to spend lavishly. He borrowed heavily from banks to sustain the troubled airline. Banks too overlooked the burgeoning losses of Kingfisher and continued to lend.

This overleveraging has been Mallya’s undoing. Kingfisher has accumulated losses of Rs 4,301 crore and owes over Rs 9,000 crore to a clutch of banks.

Investors should avoid taking debt they can’t service. If EMIs and credit card bills exceed 50% of your net take home pay, you are headed for trouble.
Review performance and change courseBCCL
Review performance and change course
Even though everyone saw it, Mallya refused to read the writing on the wall and continued to pour money into Kingfisher Airlines. He continued to live in denial.

Investors need to review their portfolios at regular intervals and take corrective action if needed. If a fund’s performance has slipped or there is bad news about a stock, it’s time rejig your portfolio.

The earlier you identify the underperformers and weed them out, the healthier your returns will be.
Don’t give in to herd mentalityBCCL
Don’t give in to herd mentality
While Mallya is guilty of financial misdemeanours, the banks which lent money to Kingfisher cannot escape blame. News reports suggest that they did not do due diligence and followed a herd mentality while lending to the troubled airline.

Confirmation bias can lead to big losses. Just because a stock or investment has been suggested by a broker or an analyst, don’t only read reports that confirm their suggestion. Listen to the critics too.
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