6 cricketing lessons to apply in equity investing

"MS Dhoni finishes off in style. A magnificent strike into the crowd! India lifts the World Cup after 28 years! The party starts in the dressing room". Twelve years from then, India is once again hosting the World Cup. This is the 13th edition of the World Cup, and it has kept everyone glued to their screens. With the cricket fever at an all-time high, it is the best time to draw parallels between cricket and investing and identify key investing lessons from the much-loved game of cricket.

Like the ICC governs cricket, the stock market is where stock investments happen. Like BCCI, which organizes and schedules matches to be played in India, investment advisors help investors create their portfolios. The unwritten rule for the Indian cricket team is to win as many matches, world cups, and tournaments as possible. Similarly, the research teams must identify stocks and create portfolios, with most of the stocks outperforming most of the time.

Here are some key lessons to learn from the World Cup:


It's All About Balance
In Cricket, we create a balanced team of batsmen, bowlers, all-rounders, and wicketkeepers. Similarly, in investing, creating a balanced portfolio involves selecting stocks from various sectors, market capitalizations, and investment styles (like growth and value) to mitigate risk and optimize potential returns.

Selection is Scientific, Not Based on Luck
While dozens of players fight for a spot in the team, the choice of players depends on factors like player’s form, pitch conditions, location, opponents, etc. Similarly, in investing, stock selection hinges on factors like a company's financial performance, industry dynamics, management quality, geographical presence, peer comparisons, and more.

Different Formats, Different Strategies
If one looks at the Indian squad in the recent cricket world tournaments such as T20 World Cup 2021, World Test Championship 2023, and ODI World Cup 2023, one can see that only 25% of the players are common across different formats. Just like the teams are created based on the format of the game in investing, the investment horizon should dictate the portfolio creation strategy.

Rebalancing is Crucial
India has participated in every Cricket World Cup since 1975. Only ~40% of those players play consecutive World Cups. Likewise, rebalancing of an investor’s portfolio means the portfolio may see changes over the years.

Patience Is Key
Sachin Tendulkar played his first ODI match in 1989 but scored his 1st ODI century in 5 years and took 34 innings to score his 100th century. This example is apt and suggests that good things and returns take time. So, one must be patient when investing, considering no one becomes wealthy overnight.

Having the Right Mix is Vital to Winning
Let’s take Virendra Sehwag, who tried scoring a boundary on the first ball of every inning. He was one of the most aggressive batters, keeping the best bowlers on their toes. In contrast, Rahul Dravid would wear out the bowler with this defensive batting.

But comparing the ODI stats of these two legends paints a different picture. In ODIs, Dravid had a batting average of 39 compared to Sehwag’s 35. Also, Dravid scored twice as many half-centuries as Sehwag in ODIs. Similarly, having the right mix of stable and aggressive stocks in a portfolio is crucial.

Warren Buffet's quote says it all: ‘What’s nice about investing is you don’t have to swing at every pitch.’

The same can be expressed in cricket: What is nice about investing is you don’t have to hit every ball out of the stadium.

One will find bouncers, yorkers, and full-toss stocks in investing. One must leave some, play some, and hit some. What is important is - winning the match or, as they say in investing, outperforming the market.

(The author is CIO, Research & Ranking. The article is co-authored by Amey Khandekar, Research Analyst at Research & Ranking)