Don’t be lazy but be “very lazy” when it comes to investing, says Pulak Prasad of Nalanda Capital fame

Investors should approach long-term investing based on evolutionary biology and implement a systematic investment plan (SIP).

Abeer Ray, MintGenie Team
Published11 Sep 2023, 10:12 AM IST
Pulak Prasad's investing style relies on Darwinian evolutionary philosophy.
Pulak Prasad’s investing style relies on Darwinian evolutionary philosophy.

It is not easy to invest money, especially when there are so many investment opportunities available and you may not know where to start. Most equity fund managers find it challenging to outperform the market in the long run, resulting in substantial shifts of capital from active funds to passive funds.

In that case, assessing various funds’ performances and correlating them with their respective fund managers’ views becomes the only option. However, the procedure is arduous and time-consuming, especially, for many new-age investors who do not look beyond past year’s returns before deciding their next investment. What investing style should investors approach then?

Relying on a really long-term approach

Pulak Prasad, author of the much-acclaimed book “What I Learned About Investing from Darwin” and Founder of Nalanda Capital, offers a new approach to investing. As opposed to how finance professionals define long-term investing, Prasad relies on long-term investing based on evolutionary biology. As he famously says, “don’t be lazy—be very lazy”, thus, hinting at the need to continue investments over years and decades. The idea of evolution talks about growth and transformation over a prolonged period. More than seeking refuge in what competitors and peers do, Prasad extracts essential insights from fundamental Darwinian principles, blending vivid illustrations from the natural world with captivating narratives of successful and unsuccessful investment choices, including his personal experiences.

Beware of the risk of losing money

Prasad not only discusses the process of wealth accumulation but also delves into the challenges many individuals face in either failing to grow a substantial financial nest egg or squandering their earnings on imprudent investments. He goes on to illustrate this by highlighting instances where people miss out on significant wealth-building opportunities by keeping their money idle in a bank account or by risking substantial losses through easily accessible apps when speculating in cryptocurrencies or stock markets.

A financially illiterate country

The lack of financial literacy among the populace is apparent when considering that our country has not yet incorporated financial education into the standard school curriculum. While many educational institutions provide courses in subjects such as mathematics, history, or literature, only a limited number of them offer “financial literacy” as an elective option. Also, while people may misconstrue investment advisors as experts showing a “big brother” attitude, the enduring harm stemming from a deficiency in financial knowledge can result in just as much, if not greater, damage than that caused by a car accident.

Ignore the chaos in the market

To effectively tune out the investment noise, the best approach is to implement a “systematic investment plan” or SIP. Here’s how SIP operates:

  • Select an investment vehicle, such as a mutual fund or exchange-traded fund (ETF)
  • Determine the monthly investment amount you wish to commit
  • Consistently invest this predetermined amount every month, regardless of market fluctuations.

The brilliance of SIP lies in its ability to eliminate emotional factors from investing. You no longer need to concern yourself with timing the market or making intricate investment decisions. Instead, you simply contribute a fixed sum each month and let the power of compounding work its magic over time.

Invest in an index fund helps

The reasoning behind investing in the equity index remains unfamiliar to many. There exists substantial empirical evidence demonstrating that over extended time horizons, equity investments yield the highest returns compared to other asset classes such as gold, real estate, or commodities. Yet, engaging in market investment through the purchase of individual stocks is fraught with danger. Given that even 90% of highly skilled fund managers struggle to outperform the market, the prospects for a retail investor appear dim. However, investing in indices offers individuals an opportunity to harness the potential for long-term wealth creation within the equity markets while keeping risks to a minimum.

Don’t invest in what you don’t understand

If you lack a clear understanding of an investment, it's advisable to avoid it. While some individuals may decipher the rationale behind investing in assets lacking a concrete underlying value, others may not. Although blockchain technology, the foundation of cryptocurrencies, serves practical purposes and finds applications in numerous established companies such as Walmart, IBM, Siemens, and P&G, investing in cryptocurrencies may not necessarily be a dependable means to generate wealth.

Do not rely on day trading

Engaging in day trading is a high-risk endeavour that may not be suitable for the majority of investors. It demands significant time, dedication, and expertise to achieve success. Even seasoned day traders may find it challenging to consistently generate profits.

Several factors contribute to the limited profitability of day trading for most individuals. Firstly, the stock market's inherent volatility leads to rapid price fluctuations, making it arduous to predict stock movements accurately. Secondly, day traders incur expenses in the form of commissions and fees with each trade, which can erode profits, especially when gains are modest. Thirdly, day traders often need to trade substantial volumes of shares to turn a profit, a task that can be both demanding and costly, especially without substantial capital.

If you are contemplating day trading, thorough research and an understanding of associated risks are paramount. Developing and adhering to a well-structured trading plan is essential. However, if you are uncomfortable with the risks or lack the necessary time and commitment, it is advisable to steer clear of day trading.

Although equity investing has the potential to generate significant wealth, individuals should recognize that it requires both time and patience. Allowing sufficient time for your investments to mature is crucial. Wealth doesn't simply materialize overnight; it's more like tending to a tree that requires daily care and nurturing to witness its blossoms and enjoy the fruits it bears.

 

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First Published:11 Sep 2023, 10:12 AM IST
HomeMoneyPersonal FinanceDon’t be lazy but be “very lazy” when it comes to investing, says Pulak Prasad of Nalanda Capital fame

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