Stock market lessons to learn from Test Cricket

By Angel Broking | Published on 21st April 2021 | 103

Stock market lessons to learn from Test Cricket

No other game resonates more with Indians than Cricket. While newer formats such as ODIs, T20s, and IPL matches have gained popularity with fans over the last few years, test cricket stands out as the game’s highest form that tests each player’s mettle. This is because it requires diligence, strategy, fitness, and patience to beat the opposing team in this long format cricket match.

In many ways understanding the nuances of test cricket can be an eye-opener for you if you are a novice looking for advice on setting your foot in the equity market.  All you need is to keep a few stock trading lessons in mind drawn from test cricket to secure your financial goals just as your favorite test cricketers do to win a test match. With a little bit of insight, you can learn to mitigate the risk and reap returns for yourself in the long run despite the market volatility. Here are a few lessons from test cricket that apply while investing in stocks:

Be aware of the economic conditions

In test cricket, the pitch and weather conditions can make or break the match. This is because they determine the speed, bounce, and angle at which the ball will hit the bat. While there are other factors at play as well, a toss can win a match, the saying goes. A good captain will pick his team depending on the pitch conditions leaving good players behind.

Similarly, in equity investment, you should be mindful of the condition of the country’s economy to safeguard your money. The ongoing rate of inflation, interest rate, GDP growth, and other market conditions influence company growth. You may notice that a few sectors can be affected negatively during an economic downturn. Hence it is wise to choose stocks accordingly.

Invest for a longer horizon

A stock market lesson not to be missed when drawing a parallel from test matches is to stay focused on your long-term goal. Players in test cricket look for the right opportunities to score boundaries while ensuring they play steadily to achieve a bigger score. Similarly, you should avoid booking short-term gains even when the desire for instant gratification is strong.

Instead, shift your focus to the bigger picture. A short-term mindset might get you immediate returns, but it will hamper your capacity to achieve significant goals over the year. Whether the market touches a record high or goes down during a recession, your long-term goal should be your guiding light to help you stay on track.

Disciplined approach

The winning side in test cricket needs to perform consistently in several matches to prove their mettle. One or two test match wins are no guarantee of success. Hence, team members need to be disciplined to perform well in batting, bowling, and fielding despite any shortcomings. Throwing wickets away due to a callous approach can put the match in the opponents’ favor.

If you are new to equity investment, the risk associated with it might bog you down, but adopting a disciplined approach just like your favorite test cricketer can help you handle the crests and troughs of the market with ease. Market volatility changes over time and hence investing with a steady mindset is key to accumulating rewards and staying undeterred even in the face of a falling market.

Diversification

The more balanced and diversified the test team, the higher are the chances of scoring a win and beating the odds. A good team will have an attacking batsman to keep the score going, one who would stick on the pitch for the long run to prevent giving wickets to the other team, and so on. Having a diversified portfolio with the right asset allocation is one of the valuable stock trading lessons you can learn from test cricket.

Factors such as your income, need for liquidity, risk tolerance, as well as short-term and long-term goals, decide how you go about managing your portfolio of stocks. You can choose between large-cap, mid-cap, and small-cap stocks and have a healthy mix in your kitty to realize your investment objectives.

Performance assessment

To cut losses in a test match, the captain has to make strategic decisions such as changing the batting order, bowling attack as well as field replacements to keep pace with the dynamism of the game. Herein lies an important stock market lesson and that is consistently monitoring the performance of your stocks. Equity markets are highly volatile and infamous for their instability, so you need to be on your toes.

If a stock is underperforming for a long time or no longer is the right fit for your investment goals depending on the market conditions, you should rebalance or readjust your stock portfolio. This would help you steer clear of impending losses and get a reasonable return on your investment.

Let go of missed opportunities

One often overlooked stock market lesson is the tendency to brood on mistakes made in haste or due to insufficient knowledge. You might also regret not having taken advantage of an opportunity that presented itself earlier. This is akin to test cricket where even the well-thought-out decisions may bounce back.

Expertise comes with time, and you might end up making a few trials and errors in the process. However, it is important to learn what went wrong instead of getting disheartened and build a strategy for the future. Remember that equity markets follow a cyclical approach and will present new opportunities again, just like in a test match.

Conclusion

Equity investment is fraught with risks just as test cricket. Just as a defensive approach will not get you wickets in a test match, opting for safer investing options will now build wealth. You have to learn to take a few calculated risks in your stride to secure the financial future of your family while beating inflation. The stock market lessons enlisted above will guide you to devise your strategy to fulfilling your long-term goals and make the most of your capital.