By Babar Zaidi, ET Bureau | 14 Feb, 2015, 10.03AM IST | Economic Times
Electoral politics and personal finance may be poles apart, but Tuesday’s black swan events held out important lessons for investors. Here are six key takeways from the Delhi polls that could make you a better investor.
1. Past performance is not an indication of the future
The biggest lesson is that past performance is no indication how an investment (or political party) will do in future. The BJP did not gauge the mood of the people and firmly believed that its performance in the 2014 Lok Sabha and assembly polls will be repeated in Delhi in 2015. Similarly, don’t expect investments to do a replay of their past performance.
2. Knee-jerk changes in strategy can prove detrimental
The BJP has traditionally been a cadre based party. But by inducting Kiran Bedi just weeks before the elections and making her the chief ministerial candidate caused dissonance in the party. Don’t make fundamental changes in your investment portfolio on the basis of gut feel. Make a strategic shift only if there are solid reasons for doing so.
3. Ascertain cause of loss and take corrective action
For the BJP, the debacle in Delhi calls for a serious analysis and corrective action. The party needs to pin responsibility and rethink its strategy for the coming elections. Likewise, you need to review your investment portfolio and throw out the underperformers. Continuing with loss-making funds or poor quality stocks will only drag down your overall returns.
4. Start-ups are risky but can yield very high returns
Apple Inc, the world’s largest company by market capitalization, was born in a garage in 1976. Similarly, nobody outside the National Capital Region had heard of the Aam Aadmi Party (AAP) till two years ago. On Tuesday, it became world famous. Start-ups may be risky but they also have the greatest potential. Chose a good company and it can transform your portfolio. Pick a dud and your investment goes down the drain.
5. If you fail to plan, you plan to fail
The worst performance was that of the Congress. The party high command was clueless while the ranks were in a disarray. The election campaign was poorly planned. It’s almost as if nobody really wanted the party to win. Unplanned portfolios with random investments will yield the same results. When you make an investment, make sure that it is for a specific financial goal.
6. Don’t get carried away by unrealistic promises
Finally, a word of caution about promises. The AAP has promised cheap power and water, schools and hospitals to Delhiites but might not be able to keep many of these electoral promises. You should also not get carried away by the rosy picture painted by a salesman or agent. Read the offer document carefully before signing on the dotted line (or pressing the EVM button).
Source : http://goo.gl/uCQH00