Investing & the fine art of Wealth Creation

Caveat – Read this only if you are not averse to exercising your mind.

What does the word investing mean to you? - Purpose

• Parking your surpluses for a deferred consumption/purchase of asset?
• Buying a ‘return-generating’ asset?
• Buying a ‘cash-flow’ generating asset?
• Buying something where the demand is expected to exceed supply for a longtime and hence drive up prices?

How do you go about making an investment? - Process

• You refer to your Financial Plan from time to time for a review in light of any developments on the personal front and/or the opportunities available, irrespective of whether you have a surplus available on hand or otherwise?
• You have a clear set of investment criteria which you ‘check’ before any decision?
• You have your list of reliable information providers – Advisor, friend, colleague – seek specific information about the opportunity under consideration from at least 2 reliable sources, before making up your mind?
• While evaluating the possible upsides do you also try and evaluate the possible downsides (in detail)?
• You clearly evaluate all costs (including taxes)?
• You pay your advisor a fee for consulting to ensure that between the 2 of you the expectations are clear at the out-set – Advisor to give unbiased opinion knowing that he is being compensated for his efforts irrespective of whether you buy or not?
• The decision to buy (or not) is yours and entirely yours?

When do you choose to make an investment? - Trigger

• Whenever you have a surplus and you can’t rest easy till it is put away?
• When you see an asset available at price lower than its fair value?
• When you are convinced (or is it impressed) by your advisor?
• When everyone you know is investing or sharing their stories of impressive gains?
• When your agent says the last date is not far off?
• After you have kept aside sufficient money for foreseeable & unforeseeable needs (and, opportunities)?

Consistently successful investors are usually well-read, do their homework, and are never afraid to invest their time in finding the next opportunity even if it results in rejecting the offer ultimately.

Lastly, can’t resist recalling a Akbar-Birbal folklore which goes thus –

Akbar – Birbal, do you think all married men are subservient to wishes of their wives?

Birbal (as diplomatic as ever) – Can’t say about all, but most men seem to abide by the wishes of their better halves!

Akbar – Can you prove it?

Birbal – If your Excellency permits, certainly!

So one day in the court of the emperor, all in attendance are asked the question with the instruction that if they abide by the wishes of their wives, they should stand to the right and others to the left.

As Birbal had mentioned, all except one came and stood on the right side - there was one old, scrawny man who stood to the left, much to the delight of the emperor.

Akbar – Birbal, there you are, here is one person and he proves you are wrong!

Birbal – Your majesty, if you will allow me just once, to question this man, please!

The emperor nods and Birbal proceeds to the old odd-ball and asks him whether he does not abide by his wife’s wishes?

The old man replies – Sir, of course I do! I do abide by my wife’s directions and she says wherever there is a crowd, I must stay away.

Akbar as usual was impressed by the old man’s answer and even more so by the wisdom of his favorite minister and best friend Birbal!

….and, successful investors are never scared to stick to the set of rules they set themselves, irrespective of the compulsions at hand!