Six random stock market thoughts from the India Australia World Cup final

22 Nov 2023 , 09:22 AM

Who wins when two of the best teams stand-off?

That was the big question when India took on Australia in the final of the ICC World Cup. OK, the match is over and one does not have to really ask how Indians felt. It was a feeling of pride at the way India played through the tournament; but a sense of dejection too, that India just about missed out on what was, perhaps, their best chance of lifting the trophy. Technically, everything looked carved out for India. They were the best team in the qualifying matches by a margin. 

India almost looked formidable like the West Indies of 1979 or the Australia of 2003. Then there was the familiarity quotient. India was playing in Indian conditions in front of an Indian crowd. Where then did things go wrong in the final? In any sports, there are bad days and that is the truth. However, if the Indian team was to look back clinically at the final, there were 6 possible narratives they missed out. The reason, I am putting down these six narratives is that every investor and trader must also keep these narratives in mind perpetually when operating in the stock markets.

Thought I – Adapt your game to the situation

Did the Indian cricket team really adapt their game to the situation? Clearly, they did not. Let me explain. When the match started, it was clear in the first few overs that the ball was not coming on to the bat. In such a situation, the obvious response should be to tone down your target mentally, rotate the strike and focus on running between the wickets. Barring Virat Kohli and K L Rahul, none of the other batsmen even tried to adapt their game to the conditions. That possibly explains a rather below-par total by India in the first innings.

What does that say about how traders and investors should approach markets. You often hear traders and investors making claims like “I want to beat the market.” That is so nice to hear, but largely so impractical. You cannot start your trading or investment journey with the goal of beating the market. The smartest traders and investors focus on the opportunities that the market is throwing up and focus their attention on that. If you try to consistently beat the market, you are likely to end up on the wrong side. Instead, the trick is to start with the assumption that the market is right. Tweak your strategy accordingly.

Thought 2 – Improve a little bit with every game

This is a statement of intent that is often underestimated. What differentiated Australia from the other teams in the tournament was that they did not start with all guns blazing. They learnt from their mistakes early and made it a point to improve their game. India, on the other hand, played incredibly well through the tournament. They outclassed all the teams in all the matches till the final. In the finals, when Australia was just about peaking, the Indian team did not have too many answers. The key point that India, possibly, missed out was that they did not attempt at continuous improvement.

How does this apply to traders and investors. Nobody became a star trader or investor in a day. If you look at how even Warren Buffett created wealth, most of the billions were created after he had crossed the age of 60. It is cumulative experience that counts, but that will only work if you improve that little bit each day. This is an important lesson for traders and investors. Don’t focus on year-end outperformance. Focus on improving each day as a trader / investor and the results will automatically follow.

Thought 3 – Manage the risks, don’t try to manage outcomes

This is another area where Australia did much better than India in the finals. When the match started, India was up against several risks. There was the risk of complacence, the risk of losing the toss, risk of rains, late night dew and the list can go on. For India, the toss was lost, but that may not have made a big difference. What made a difference was the speed in managing the risk, when Australia came up with their counterplan. That was the time, the Captain was expected to take the lead and manage the risk. That was not done and that made all the difference in the final analysis. Australia was armed with Plan A and Plan B.

How does that apply to trading and investing? Focus on risks not on returns. Remember, you don’t control returns, but you do control the risk. You don’t have any control over how the price of Reliance Industries will move over the next 2 years. However, you do have control over how much of exposure you want to take to that stock. An important condition in trading and investing is to focus on factors you can control and risk is one of them. You don’t control returns, so stop chasing multi-baggers. If risk is managed well, multi-baggers will happen.

Thought 4 – Have the Big Match Temperament for the Big Moment

In cricket, there is something called the big match temperament. Some teams appear to win on the big occasions again and again, purely due to their big match temperament. For example, in the last 36 years, there have been 10 ICC World Cups and Australia has won 7 out of these 10 World Cups. That is an incredible average. During the same period, South Africa, has been almost at par with Australia as an equally talented team in most years, but they have not won a single World Cup. If you look at India’s previous World Cup wins in 1983 and 2011, it was because men like Kapil Dev, Mohinder Amarnath, and MS Dhoni displayed the big match temperament. 

How does the big match temperament impact traders and investors. What makes an investor a good investor and what makes great investors? It is about big match temperament. You can have all the other qualities of a trader or investor, but you still need the big match temperament. On the day of a massive crash, did you have the courage to get in and buy your favourite stocks? Did you sell stocks amidst euphoria, because you thought it was more important to have liquid cash? This the kind of big match temperament that makes successful traders and investors.

Thought 5 – it isn’t over, till it is actually over

Actually, the famous baseball coach Yogi Berra famous said, “It ai’nt over till it is over.” India may have lost the match late in the day, but by the half way mark, they almost appeared to have given up. It was evident from the wide eyes, drooping shoulders, tensed faces, and the eerie silence of the crowd did not help one bit. Rewind back to 1983. Vivian Richards was going berserk and threatened to take the game away from India. That is when the captain had to make his presence felt and that is exactly what Kapil Dev did. Smart field positioning and an incredible catch by Kapil Dev not only ended Richards’s stint, but also sealed the match in favour of India.

What is the takeaway from stock market participants. OK, that is quite simple. There are good days, there are bad days and there are awful days. Your success on the next day would largely depend on your ability to go back to the drawing board each night, look at the key takeaways and forget about the losing experience. There is always a way out or as Churchill said, “the best way out of a bad situation is through it.” Optimism is a force multiplier and nowhere is that more evident than when you are down in the dumps. If you can convince yourself that it ai’nt over, the job is half done.

Thought 6 – You will still be judged by your last performance

That is sad but true. Now, nobody will really talk about how India gave a dressing down to other teams in the first ten matches. What everyone remembers is the last match. If you were good in your last performance, the world will give you a standing ovation. Otherwise, you will be reviled, and it does not matter who you are and what you did before your last defeat. That is a lesson that the Indian team will be forced to live with for now. The trick lies in getting over it and bouncing back, but you cannot change the noise.

This is so true of any investor or a trader. The moment you have a bad month or a bad quarter, people will believe that you have lost your touch. Even a Warren Buffett after generating twice the CAGR returns of the S&P 500 index for 55 years in a row gets questioned after a bad quarter. But that is a reality that cricketers and traders have to live with. In the public eye, you are only as good as your last performance. The trick, therefore, lies in taking the lesson, ignoring the noise, and moving on.

That is what you need to do. That is definitely what Team India must do for now. To paraphrase Malcolm Forbes, “Victory is sweetest, when you have tasted defeat.”