Friday, June 15 2024
Source/Contribution by : NJ Publications

Whether you are an investor or not, it is pretty certain that you must have heard about the famous Chanakya or his Nitis.

Chanakya was not only a greatest scholar, economist, and political strategist but also a proponent of astute financial management. His teachings, encapsulated in the treatise "Arthashastra," offers valuable insights for modern-day investors striving for financial success in life. From political strategies to governance and management skills, he excelled in all areas. Chanakya’s ideas and principles were so influential that they are still considered management axioms today.

In this blog, we explore Chanakya's enduring wisdom, his teachings to unearth valuable investment lessons for enhanced financial management and success. While the era may differ, the core principles of strategy, foresight, and skills remain as pertinent today as they were centuries ago.

1. Have a Plan in place before investing

“Before you start any important work, ask yourself three questions: why am I doing it? What the results might be, and will I be successful? Only when you think deeply and find satisfactory answers to these questions, go ahead”

It's always advisable to outline a comprehensive plan before embarking on any endeavor, and this principle holds true for investment as well. Establishing a clear plan is paramount to success in investments. Without defined objectives, navigating questions such as where to invest, how much to invest, and for how long can be daunting.

However, when you align your investments with specific needs, the entire investment process becomes more streamlined. By understanding your objectives, you gain clarity on the duration of your investment horizon. This, in turn, enables you to determine the required investment amount and the most suitable investment vehicles to attain your target. If you don’t know where you are heading, it doesn’t matter how quickly you run!

Furthermore, syncing your investment with your needs encourages you to remain committed to your investment strategy. It serves as a deterrent against impulsiveness, which can be your greatest enemy in financial endeavors.

2. Build an Emergency Fund

“Save your wealth against future calamity...when riches begin to forsake one, even the accumulated stock dwindles away”.

This advice from Chanakya underscores the significance of establishing an emergency fund, which is vital for ensuring financial security and stability. An emergency fund serves as a financial safety net, enabling individuals to address unexpected financial challenges such as adverse market movements, medical expenses, significant home or vehicle repairs, job loss, and more. Financial experts typically recommend maintaining an emergency fund to cover at least six months' worth of expenses. In adverse situations, an emergency fund meets your daily needs so that you don’t have to tap into your long-term investments. Emergency funds help you stay afloat without relying on loans or credit cards, thus, prevent you from falling into a debt trap.

3. Embrace corrections, stay committed to your investments

“Once you start working on something, don’t be afraid of failure and don’t abandon it. People who work sincerely are the happiest.”

Over the past few decades, stock markets have experienced several corrections triggered by various factors such as pandemics, scams, and economic downturns. However, regardless of the cause or the severity of the decline, equity markets have always bounced back in the subsequent years.

During periods of market corrections, many investors panic and sell off their investments at a loss. This behavior often converts potential paper losses into real ones. However, investors who demonstrate patience and remain invested typically emerge as the most satisfied in the long run.

4. Don’t plunge into the well to gauge its depth

“Learn from the mistakes of others…You can’t live long enough to make them all yourselves.”

Observations can be a powerful teacher. Not all lessons require personal experience. Astute investors glean insights from others' missteps, safeguarding their own finances by avoiding similar errors. For instance, if a pattern emerges of consistent losses in penny stocks among peers, why expose oneself to that risk? Both in management and investments, lessons often come at a high cost and are best absorbed through observations. Many renowned investors have candidly shared their mistakes in books or autobiographies. Only after a thorough comprehension of market mechanisms should one venture into investment.

5. Refrain from excessive indulgence

“Too much of anything is bad. One should refrain from too much.”

The principle of not going overboard applies to investments too. Putting too much into any single asset class can backfire. That's why diversification is a cardinal rule of investing. Diversifying across various asset classes like stocks, bonds, and gold offers better downside protection, ensuring a more stable investment journey, as not all investments perform well simultaneously.

6. Entrust your wealth solely to those who are deserving.

“Give your wealth only to the worthy and never to others. The water of the sea received by the clouds is always sweet.”

The growth or decline of your investments hinges on how effectively you manage your money. Investing in well-regulated products like Mutual Funds or NPS, where qualified professionals manage your money, can make your wealth work for you. Conversely, taking the DIY route might seem like a money-saving option initially, but it can be risky as you could encounter mistakes that would ultimately result in greater expenses down the line.

Conclusion

Embracing the Chanakya’s simple yet profound lessons can lay the foundation for a rewarding investment journey. By incorporating his teachings, investors can navigate the uncertainties of the market with greater confidence and resilience, ultimately achieving their financial needs and aspirations. It’s all about blending India's traditional wisdom with modern financial techniques. Investors can leverage the strengths of both worlds to optimize their investment strategies and achieve sustainable growth and prosperity.