EDELWEISS

MUTUAL FUND

Financial & Business

Book Summaries

An Investor Education Initiative Volume III

 A book is a gift, which you can open again & again
- Garrison Keillor

Many of us want to read books. We make a list of books to read. But

often, we are pressed for time.

We have made this simple for you. We started doing book summaries of
specially curated list of finance and investment books.

Engross yourself in the Volume III of these selected book summaries

created by Edelweiss Mutual Fund.

You can access the entire library of all book summaries anytime,
anywhere through our mobile app ‘eInvest’.

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releases.
 CONTENTS

1. Learn to Earn 3

2. The 10X Rule: The Only Difference Between 5

Success and Failure

3. Poor Charlie's Almanack: The Wit and Wisdom 8

of Charles T. Munger

4. Outliers: The Story of Success 11

5. The Snowball: Warren Buffett and the Business of Life 14

6. Common Stocks and Uncommon Profits and Other Writings 17

7. What I Learned Losing a Million Dollars 20

8. Common sense on mutual funds 23

9. The Wisdom of Success: The Philosophy of Achievement 26

10. The Misbehavior of Markets: A Fractal View of 29

Financial Turbulence
 Learn to Earn
Author: Peter Lynch

Earning well, is the lifelong ambition for most people who struggle with their expenses and financial freedom. While everyone
earns in some way or the other, there are few who can boast that they know how to earn well, and this makes wealth a dividing
factor for the society at large. Imagine an ecosystem where every individual knows how to earn well – such a society would
never experience poverty or the many ill-effects caused by this societal malaise.

In his interesting treatise on how to earn well, aptly titled Learn to Earn, Peter Lynch, famous American investor and author,
shares his insights on how individuals can go forward and realize their dreams of financial independence. As one of the most
successful investors of all time, Lynch knows enough about financial wellness to be able to offer you actionable insights, and
that is exactly what his book unlocks – wisdom that will allow you to fulfill your financial goals and more, without getting burned
out in the quest for sustainable wealth.

Key Takeaways

· When you find something that you enjoy doing, you find it easier to give the task everything you have. And, when these two
aspects come together, your finance will take care of itself.
· Too many people file for bankruptcy each year – and it is up to you to learn the tips and tricks which prevent you from losing
your money.
· Limited liability is the reason why people are willing to invest in companies and shares because, if investors were held
responsible for the mistakes made by the company, no one would be willing to invest.
· If you are someone who has a stake in the enterprise then it is likely that you will work harder to achieve the goals of the
company. Further, it is likely that this would also make you happier.
· Big companies are usually a better bet for you, because they are less likely to go bankrupt, and more likely to offer dividends.
· They are also less risky and can be sold off at a profit, when the time is right.
· Debt is akin to reverse savings – the more you have of it, the worse off you will be.

There are many important lessons to be gathered from Learn to Earn, which is also considered the beginner’s guide to investing
and business. As an individual, there are many mistakes that you may make, the first and foremost being living in debt. For a
normal person keen on purchasing an expensive item, be it a car, home or even a smartphone, credit cards or loans may be the
best option. But you would do well to remember that debt is a slippery slope. The more you amass of it, the more it engulfs you,
until such time as getting out of the debt trap may become impossible. This is what leads many people into bankruptcy. These
and many other wise nuggets are shared by Peter Lynch in Learn to Earn.

Understanding investments

While we have all heard of investing, and many of you have probably already started your investing journey, there are some
basic tenets you must remember. First of all, the purpose of investment is to allocate money with the aim of realizing profits in
the future. Therefore, investments need to be made with a clear focus on the asset’s possibility of growth. You can invest in a
variety of asset classes ranging from bank savings and fixed deposit accounts to mutual funds, stock markets, and commodities.
But you must remember that where you invest would depend on your financial goals and risk appetite, as well as your return
requirements. Investing is the best way to make your money work for you and it is also a prime lesson towards earning money.
After all, there is only so much you can earn by working tirelessly. You must also be able to make your hard-earned money work
for you, and this can only be done through optimal investments. And, while you wait for your investments to bear fruit, you must
also remember that patience is a virtue in the investing world – you would have to wait years for your money to offer effective
returns.

Where should you invest?

The next question revolves around where you should invest. Taking the decision to invest is comparatively easy – each one of us
wishes to earn profits and we all know that investing is the effective choice. However, given the array of investment options
available to you today, the where can get extremely confusing. The main investment options available to you include bank
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deposits, stock markets, mutual funds, and government bonds or fixed income. You need to understand that leaving all your
money in banks is not an effective investment strategy. Given the rate of inflation, such an act would be tantamount to losing
money in the longer term. Therefore, you need to diversify or divide your money across various asset classes, based on your
investment goals, to make the most of the opportunities available. Another benefit of investing your money is that you allow
your wealth to become a part of the larger economy, since each of these asset classes are integral parts of the global financial
ecosystem.

Why investing in economic growth is essential

Just as all of us require money to grow more wealth, so also the country, and the globe at large, requires money to grow and offer
more opportunities to its populace. Investment is a primary source of income for the economy, which utilizes your invested
money to grow different resources, thereby, enhancing the employment rate. It is through such economic investments that
your wealth and earning capacity continue to grow. When you invest in bank deposits or the stock markets, you provide banks
and companies with the capital necessary to grow, and it is this growth which generates returns for you as a profit on your
investment. This wealth is also grown further by the companies and banks, and shared with their employees as salary/bonus
payment. The entire circle continues to repeat till such time as people remain invested in economic development. Therefore,
investors can be considered as the primary link to a capitalist chain. The more you invest in the country, the more you will earn
out of it, in addition to also benefitting your employed compatriots.

Chief investment goals to consider

The next important aspect to understand is that of financial goals. When you undertake any task, be it at work or in your
personal life, you would usually have a goal behind it. For instance, if you choose a specific field of study for your post graduate
degree, the goal behind said decision is to garner specialized knowledge and then, in time, attain gainful employment in the
field of your choice. Similarly, your investment would also require a goal for it to be successful, because it is the goal which helps
you assess your time horizon and the return requirement most likely to help you achieve your goal. Based on these aspects, you
can easily decide on where you should invest your money.

Decoding the stock market

Once you know how much you want to invest, for how long, and for what rate of returns, you can turn towards the mode of
investment. One of the main asset categories, and the foremost preference of investors with a high appetite for risk, is the stock
market. However, many people stay away from stock markets which have the potential to offer high returns, owing to a lack of
knowledge and an intense fear of the underlying risk. As a potential investor, you should know that, historically, the stock market
has proved reliable and profit-making over the longer term, making it an excellent opportunity for someone open to a long-term
commitment. Once you decide to dip your feet in the stock market, you should start slow and only invest small amounts. As with
every field, practice is what helps you become perfect in stock markets too. So, start small and keep practicing, till you become
confident of your next steps. Investing in stock markets is also a great opportunity to become a part of the success story of a
company, so only invest in companies that you believe in, rather than following fads and unreliable trends.

As an investor who wishes to earn money, the world is your oyster. There is huge untapped potential available in the domestic
and global markets, both stocks and fixed income, as long as you are willing to take the efforts required to unearth them. Be
diligent in your exploration and maintain curiosity about every aspect of the market. Remember that your money needs to work
for you, if you harbor ambitions of becoming wealthy. It is very easy to get waylaid by the circle of debt but, it is much more
fulfilling and fruitful to enter the rewarding circle of investments. Not only do you benefit yourself, you also become capable of
promoting the growth of your country and the companies you believe in.

Clearly there are many investment gems in the book. However, the big question is that how do you discover and benefit from
these gems. The answer lies in mutual funds. Mutual funds are an investment vehicle that give you an opportunity to build a
diversified portfolio spread across multiple investment types like equity, debt, and commodity. They help you spread your risk
such that you can benefit from the performance of multiple investment opportunities while lowering the overall risk of your
portfolio. In addition to that, a key thing about mutual funds is that you can invest in them via the Systematic Investment Plan
(SIP) route. This allows you to invest a fixed amount of money on a periodic basis, which could be fortnightly, monthly or even
quarterly, in an investment of your choice. By choosing to invest via an SIP, you can reap the benefits of compounding and rupee
cost averaging – both can help you in your long-term wealth creation journey.

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 The 10X Rule: The Only Difference Between
Success and Failure
Author: Grant Cardone

As the CEO of Cardone Enterprises, and an international speaker, entrepreneur, and renowned author, Grant Cardone has been
named as the top marketer by Forbes, indicating his exceptional hold on the subject. He has been credited with authoring the
popular treatise on success, The 10X Rule, as well as creating 21 bestselling business programs. As an individual, Cardone
believes that success is one’s duty, obligation, and responsibility and his ‘The 10X Movement’ and ‘The 10X Growth Conference’
have been a part of the success story of many entrepreneurs. In his own words, Cardone states the following – “I work with small
companies and Fortune 500 companies to grow sales by finding overlooked opportunities and customizing the sales process to
be more effective… considered the top sales training and social media expert in the world today.”

Given his years of practical experience in the field, Cardone’s ‘The 10X Rule’ is a definitive guide on achieving your goals and
finding the difference between success and failure. Through the book, Cardone will prompt you to take consistent efforts and
move above the constricting and often outdated middle-class myths which might limit your ambitions and stop you from
realising your true potential. Breaking free from such mental shackles can help you fly free and create a journey which is filled
with satisfying memories. With unique and well-articulated views on everything from leadership to sales and the economy,
Cardone’s ‘The 10X Rule’ is a veritable treasure trove – it will certainly help you in creating the right path to a successful future.

Key takeaways

· Not setting goals high enough is one of the biggest mistakes that you can make
· You need to understand the actual level of effort and thinking required to succeed in life
· The 10X rule involves operating at activity levels which are far beyond the normal
· Remember to always set targets which are 10X the goals you have in mind
· You are only limited by your own thoughts and actions
· Never limit the amount of success you wish to achieve as this will set you up for failure
· When you already know that any goal worth achieving will require effort, it is better to set high goals from the outset

As individuals, you are primarily working towards two things – achieving your own goals and/or helping visionaries achieve their
goals. In this scenario, isn’t it better to rather focus on your own goals, rather than being a cog in someone else’s wheel? Setting
your goals and dreams at a high pedestal and working 10X harder to achieve them is the biggest reason which can contribute
towards your success. Focus on two important things. Firstly, never seek to reduce your target. Instead, work to achieve the high
targets that you envision for yourself. Secondly, do not try to explain away your failures, as it is but a waste of your time and
talent. Instead, work on increasing your actions in a way that helps overcome the previous failures and attain success. In simple
words, you can achieve actual goals only if you take massive action, and this is where the 10X rule comes into play.

Average = Less Than Extraordinary

While the world you may be living in appears average at most touchpoints, that does not mean that you should set average goals
for yourself. After all, by definition, average is nothing if not less than extraordinary and your goals should not be anything less
than ordinary. Most of your compatriots may be living average lives, leading average careers and setting themselves average
goals but it is your responsibility to aspire for and work towards achieving the extraordinary. The underlying problem does not
revolve around the average being insignificant. Not everyone may be cut out for an extraordinary life or for becoming a
millionaire but it is unacceptable to depict average as a safe bet to focus on. If you wish to be extraordinary in life, and create a
successful presence, you must take efforts to create long-term goals which require 10X more work than the average. Also,
staying at the average level for long can end up pushing you into the below-average category, as it is easy to slump when your
ambitions are low. If you have an average career, it is very easy for you to slide lower – all it would take is one unprecedented
event.

Focus on extra efforts and bigger goals

The underlying 10X rule consists of two parts – you need to put in extra efforts to attain bigger goals. Having such a mindset will
help you stop yourself from remaining in the average category. Keep two things in mind – It is possible that the goal you have in
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mind will require 10X more effort than you have estimated, so always account for this eventuality and, always try to shoot for
10X the result, in terms of the goal you set for yourself, to actually end up in a position much higher than your initial goal. If you
keep these two things in mind, you will never not succeed in the goals you take up.

The additional effort you put in can also be a buffer against events that go against the flow of your progress, helping you attain
your goals even during unforeseen situations. Therefore, it helps you prepare for whatever hurdle may present itself in your
journey. And, to simplify the second part of the equation, if you shoot for the moon, you may end up among the stars, for there is
no guarantee that the amount of effort you put in will provide you the exact results that you are aiming for. It is, therefore, better
to just try for 10X the desired result, as this will, in a negative situation, put you at par with the desired result and, in a positive
situation, help you do much better than you actually desired.

Massive actions help achieve goals

It is not the timid who make success out of themselves. If you wish to succeed, you cannot get by with the bare minimum action
required of you. You must put in massive action to reach your end goal. There are three parts to this story. One, you take no
action, wherein you do nothing at all to achieve your goal. Two, you retreat from the action, because whatever action you
previously took has resulted in failure and left you disheartened. And, three, you put in the normal amount of action, wherein
you lead an average life and just do the bare minimum. None of these scenarios are equipped to help you achieve success. You
must always be willing to put in massive action, as it is the only way to help you reach your dreams. Indeed, your focus must
never be on reducing your targets but rather, on increasing your actions and efforts in a concerted and sustainable manner, as
this will form the cornerstone of your success.

Success is your duty

For different people, the term success means different things. It depends on your views on life, and where you are at a particular
stage. However, there are few aspects which are indisputable, and these can be enumerated as – success is important and
success is your duty. One of the biggest reasons why people end up not achieving their goals revolves around the fact that many
individuals end up considering success as an option, rather than a duty or a responsibility. While you can discuss success in your
own words and opinions, this fact remains undebatable – success should not be an option if you wish to succeed. Only the ones
who do not make excuses for their failures end up succeeding, because their focus remains, at all times, on the actual end goal.
Also, success is not a limited resource that can only be attained by a chosen few. There is no shortage of success, as long as you
are willing to put in the effort required to achieve it. Another important lesson is to assume control of all the events in your life –
whether they be good, bad or ugly. Once you accept that everything in your life is under your control, you will be better placed to
grab your life by the reins and race towards achieving your goals.

Avoid competition

People who compete with their peers remain stuck behind their peers, without actually realising their own full potential. Rather
than wasting your time chasing someone else, take efforts to achieve dominance in your sector. And, this is not as difficult as it
sounds. Firstly, you need to decide that you wish to dominate the space and, once you set your mind to it, focus on mastering the
things that your peers are refusing to do, or are not as good at doing. This will offer you a great advantage and help you create an
exceptional niche for yourself, which can then help you dominate the sector.

Achieving success need not be the bastion of a select few, as long as you are willing to set yourself 10X goals, and then put in
massive action and 10X efforts to fulfill them. Break out of the average and middle-class mentality and give yourself the wings
you need to succeed in your chosen field. Go all in and remember to commit to your goal. It is okay to be obsessed with success,
as long as it is a positive obsession focused on action and efforts.

It is commonly said that if you fail to plan then you are probably planning to fail. While this is true for many walks of line, it is
especially true for your financial goals. As an individual, you would have several financial goals ranging from buying a car or a
house to probably taking an early retirement. If you want to achieve any of these goals you must take massive action. This means
that you need to start your financial planning journey and you need to start this now. You should not be afraid of your goals.
Instead, you should set high financial goals and then create a financial plan that can help you achieve them. However, it is not
necessary that the actions you take will always take you closer to your goals. Which is why there are two things that you should
consider in your financial planning journey. One, always consider taking the help of a professional. And, two, you should
consider investing in mutual funds. These are investment vehicles that pool investor money and then invest it in different
categories like debt, equity, gold, etc. They also follow different types of strategies and investment themes. Mutual funds are
diverse in nature, regulated by the Securities Exchange Board of India (SEBI) and managed by expert professionals. All of these

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factors contribute to their ability to help you achieve your financial goals, even the 10X ones. Additionally, if you really want to
achieve your 10X goals then you should consider investing in mutual funds via the Systematic Investment Plan (SIP) route. This
will allow you to invest a fixed amount of money in a mutual fund scheme of your choice and at time intervals that suit you best.
This means that you could choose to start a fortnightly, monthly or even a quarterly SIP. Two of the biggest benefits of SIP is that
it gives you the benefit of compounding as the returns you earn are reinvested to generate more returns and allows you to gain
from rupee cost averaging since with an SIP you are able to participate in market ups and downs. These two are very powerful
benefits that can help you grow your wealth 10X.

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 Poor Charlie's Almanack: The Wit and
Wisdom of Charles T. Munger
Author: Charles T Munger

Charlie T. Munger, often known as Warren Buffet’s right hand man, is one of the most influential and successful investors of all
time. If you are someone who wants to learn about investing, astute financial planning or just a good and honest life, then you
will definitely benefit from reading his book, ‘Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger’ by Charles T
Munger. He is an inspirational leader and an honest businessman who is guided by a strong work ethic.

This book is a collection of the best advice given by Charles Munger over the last 30 years. It covers a diverse range of topics
including investing, astute financial planning, rationality and decision making, how to live a good life, etc.

Key Takeaways

· The foundation for any good decision is rational thinking and avoidance of biases
· As human beings, we are all impacted by biases which lead us to making sub optimal decisions
· Biases can effectively be dealt with if you are able to recognise that you don’t know everything and are willing to learn
· When making investment decisions, avoid following the herd
· Contrary and divergent thinking will help you identify great ideas
· The big opportunities are rare, so you always need to be prepared for them
· Having an investment decision checklist will not only prepare you for the big opportunities but will also ensure that you are
able to remove bias from your investment decision making process
· Asset allocation is the most important tenet of investment decision making
· Having a long-term approach to investment can accrue multiple benefits and ensure that you are able to optimally harness the
power of compounding

Rationality and decision making

Every individual, including you, is subject to biases that can have a significant impact on your ability to make rational decisions. If
you want to make better decisions then you must focus on seeking the truth and making an effort to understand what is truly
happening. This will help you recognise your biases and also limit their damage. Some of the notable biases that can potentially
impact you include:

· Incentive bias: All humans are driven by self-interest. If you receive a reward for doing something, you will intuitively repeat
that behaviour again and again.
· Doubt-avoidance tendency: Doubt is painful and can cause a lot of stress. When you are in doubt, you tend to make decisions
more quickly and often the wrong ones.
· Inconsistency-avoidance tendency: Most people don’t like change. Whether it is about personal behaviour, beliefs, investment
approach, etc., change is generally avoided.

Below, is a step-wise process to reduce biases as much as possible and make optimal investment decisions:

· The first step is to understand how easy it is for you to fool yourself.
· Second, you must consider the views of other people as well, especially if they are in contrast to your ideas and opinions.
· Third, after considering the viewpoints of other people, you should be open to changing your mind if the other person is
making a compelling argument.

Practice divergent and contrary thinking

The fact of the matter is nobody knows everything and is right all of the time. It is easy to go with the herd and keep practicing
something, even if it is incorrect. To avoid this, you must practice divergent and contrary thinking and invite new ideas that
might be more correct than what everybody else thinks. This is something that can be particularly effective in the field of
investing. Most people tend to buy when other people are buying and sell when other people are selling. So, if the crowd is
collectively wrong, which it often is, then you end up making wrong investment decisions more often than not. To combat this
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problem, you must be cautious when others are euphoric and euphoric when others are cautious.

Investing and decision making checklist

One of the best ways by which you can avoid making biased investment decisions is to create an investment checklist and ensure
that you stick to it.

The first aspect that you must consider is risk. In fact, all the investment decisions that you make should begin with an evaluation
of risk, especially reputational risk. The top things that you must incorporate in your risk assessment include:

· Ensure that your investment has an appropriate margin of safety

· You must avoid dealing with untrustworthy people or people of questionable character
· If you are taking higher risk then you must ensure that you are adequately compensated for it
· Always take into consideration the impact that inflation and interest rates can have on your investment
· Try avoiding big mistakes that can lead to a complete loss of capital
· Adopt independent decision making instead of following the herd

Always remember that just because other people agree or disagree with you doesn’t make you right or wrong. The most
important factor is the correctness of your analysis and judgment. When you follow the herd, you are setting yourself for failure.
But if you want to become an independent thinker then there are a few things that you must do:

· Become a life-long learner by inculcating a good reading habit. You must cultivate curiosity and strive to become a little wiser
every day. You can achieve this by reading good books and incorporating learnings from those books into your life.
· Ask smart questions: The only way you can become smarter is by asking the right questions. Begin with incorporating
intellectual humility and acknowledge that you don’t have the answer to everything. Once you accept this universal truth, you
need to keep asking ‘why?’
· Develop competence and stick to it: It is always good to develop skills or competence in a particular domain and then stay
within a well-defined circle of competence. While you keep asking ‘why’ ensure that there are certain fields in which you will
always have the answers.
· Never fool yourself: Always remember that the easiest person to fool is ‘yourself’. Do not fall into that trap. Be honest with
yourself, acknowledge your shortcomings, and persevere to consistently learn.

Another important aspect that requires your attention in the investment decision making process is your asset allocation
strategy. The proper allocation of capital should be your number one priority. So, always be judicious about where you are
investing and what kind of exposure each investment is giving you. Also remember that the highest and best use is always
measured by the next best use. This is how opportunity cost is defined. Further, in your investment journey, there will only be a
handful opportunities when you will come across great investment ideas. This is because good ideas are rare. So, if you do come
across investment ideas where the odds are greatly in your favour then you need to ensure that you allocate heavily in that
direction. Opportunities do not come often and thus you need to seize them when they come. The game is won when the
opportunity meets a prepared mind. At the same time, avoid falling in love with your investment. Ensure that your investments
are situation-dependent and opportunity-driven. Above all, exercise patience and resist the natural human bias to act. If you are
investing, you must invest for the long-term and avoid the urge to trade frequently. This will help take emotion out of the
picture. Another big benefit of long-term investing is the power of compounding. Compounding ensures that the money you
earn keeps multiplying. You should not unnecessarily interrupt the compounding process.

Living the good life

If you really want to live the good life you must have low expectations so that you are not always setting yourself up for
disappointment. It is also good to have a sense of humour and the ability to laugh at yourself. Most importantly, surround
yourself with your loved ones and family and above all, live with change, learn to accept it, and adapt to it.

One of the most important things that you will do in life is create and preserve your wealth. There are many ways of doing this.
However, your biases can come in the way of having a great wealth creation journey. While there are always means to reduce
your biases, we all know that this is no easy task. The good thing is that a simple solution to this could be Balanced Advantage
Funds. These belong to the hybrid category of mutual funds as they invest in both debt as well as equity instruments. A good
Balanced Advantage Fund should be able to captialise upon the opportunities presented by equity investments while
protecting the investor from the downside risk of equities by also investing in debt instruments. But the key here is deciding how
much to invest, where to invest, and when to invest. This is where the Balanced Advantage fund can be particularly helpful. It

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will increase exposure to equities when markets start going up and reduce exposure to equities while increasing exposure to
debt when the equity markets start going down. The best part is that the decision of shifting from one investment to another is
governed by pre-defined factors. Thus, it removes the bias and emotion from the investment decision. To sum it up, while you
should definitely embrace means to reduce bias and improve your knowledge, you should also consider investing in a Balanced
Advantage fund that will automatically take care of human biases.

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 Outliers: The Story of Success
Author: Malcolm Gladwell

The author of five New York Times bestsellers, Malcolm Gladwell has been included in the TIME 100 Most Influential People List
and is known for his keen insight into human psychology and the path to attaining success. In Outliers: The Story of Success,
Gladwell challenges traditionally prevalent notions such as the rags to riches narrative of success by explaining the myth of the
self-made man. He does this by analysing the various factors that come together to create success. These are usually a
combination of lucky events, rare opportunities, and other external aspects which are not really controlled by the person
attaining success.

Gladwell has built his insight through years of research into the human psyche, as well as a study of history, considering things
both overlooked and misunderstood.Outliers challenges the popular narrative around success by sharing examples of
successful people from across the globe and from sectors including hockey, science, law, and agriculture. The treatise is an
excellent exposition on how aspects such as your generation, culture, family, and unique life experiences can play a part in your
journey to success. Gladwell states that while ambition, intelligence, and hard work are important ingredients for success, they
don’t make it happen on their own.

Gladwell argues that the way most people, including you, view the notion of success is wrong and, through examples and
analyses, will help you understand the logic behind the concept. While debunking success myths, Gladwell will also offer you
the possibility of working towards personal success by imbibing the qualities and practices of successful people who came
before us.

Key takeaways

· The traditional narrative of success which states that a combination of passion, talent, and skill can lead to success, is
inherently flawed.
· While the above are important in achieving success, it is also driven by the circumstances under which you are raised and live.
· While intellect is important to success, it cannot empower someone beyond a certain threshold.
· People from strong backgrounds have an upbringing based on practical intelligence, including soft and social skills which help
them navigate society in a better way.
· Work is enjoyable only when it is meaningful and meaningful work paves the way to success.
· Science helps people understand the world but religion helps you understand the intangible connections between human
beings.

Every day, you see new examples of success and you must be thinking that if others can achieve success, then why can’t you.
However, understanding the factors that help shape success can help you attain success in your own pursuits. It will also help
you realise that people who are successful have a backstory, making them more relatable and humane.

A person's abilities can only take them so far

How far can your abilities and skills actually take you? While it is true that your skills and abilities, along with practice, can help
you achieve success, these are not the only metrics important to the equation. Factors such as a genetic predisposition and the
circumstances you grow up in matters as well but, success is not attained through just these elements. For instance, height
matters a great deal when it comes to the NBA and, since the 1980s, NBA players have an average height of 6.7 feet. However,
does this mean that someone who is 7 feet tall would perform better on the court and have a better shot at success? Not really.
Another instance worth considering involves the law degree, where studies have shown that people from racial minorities
perform worse than their non-minority peers before and during their law degree course. However, post completion, the gap
between the two parties vanishes, making them equally paid and equally valuable at the workplace. So, what is the
differentiator here? The difference between the achievements of the successful and not so successful can, then, be attributed
to aspects such as social skills and practical intelligence, as this helps people navigate the journey to success.

Being slightly older than your peers goes a long way

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Relative age matters tremendously when you are a young prodigy. In fields such as sports, where your strength and speed
matter a great deal, having a slight age advantage makes all the difference. People who are born in the first six months of the
year tend to outperform their classmates who are born later in the year. That's why, in many schools, the annual cutoff for teams
is January 1st. This means that children born in January, and those born in December of the same year, end up butting heads and
the almost one-year age gap makes the older kids much better at the game. This difference is especially enormous at school
level, where the difference makes up a large percentage of your age. As you grow up, this factor becomes less important but,
many times, success is attained and sealed during people’s school-going years.

Geographical affiliations affect success

There is a belief that people who have an Asian background are better at mathematics than their Caucasian peers. When
analysed, it can be seen that there are actually several factors which lead to this stereotyping. Research indicates that Asian
languages teach children to practice addition while learning numbers, making them better equipped at math, in comparison to
their non-Asian peers. Further, discipline is an inherent part of the Asian psyche and this has been instilled through centuries of
rice farming. As rice farming requires more precision, coordination, patience, and control than wheat or corn farming, Asians
have a legacy which makes them more adept in such skills and this in turn, makes them better at mathematics. This is, therefore,
a major advantage available to Asian mathematicians, ensuring that they perform better than their non-Asian peers.
Additionally, the patience that you develop while rice farming helps Asians stick with complex problems and find solutions, as
against non-Asians who may give up when the going gets tough.

Following the 10,000-hour rule

While studies and psychologists have spent ages trying to decode the connection between talent and success, one fact has been
confirmed – preparation plays a huge role in forming and boosting talent. A study by psychologist K. Anders Ericsson, revolving
around Berlin’s Academy of Music, indicated that the respondents in the top tier of violinists had practiced about a total of
10,000 hours in their lives. Those in the middle tier had practiced 8000 hours while those in the lowest tier had completed 4000
hours of practice. This study was repeated with the academy’s pianists too, and the results ended up being the same! While this
may lead you to believe that talent holds no role in success, that is not actually true. Yes, talent does matter, but it is preparation
which helps hone the talent and the skill, thus helping you achieve success. The fact that the Beatles had performed live over
1200 times, by the time they received their big break in 1964, helped them be better on stage than all the other bands
performing at the time. Preparation, therefore, helps increase the odds of attaining success.

IQ alone does not create a genius

People with high IQ have been known to achieve success in their chosen fields but IQ is not the only necessity for being a
successful genius. In fact, research indicates that IQ will only help you up to a certain point, after which other aspects such as
practical intelligence, agility, resilience, adaptability, etc., will come into play. Therefore, if your IQ is above 120, your real-life
benefits will not be very different from that of someone boasting an IQ of 180. Divergence tests highlight areas other than IQ,
which play a role in crafting success, including creativity and imaginative capability. Further, practical intelligence helps you
analyse situations correctly and react more successfully. Indeed, practical smartness helps more than actual IQ and, frequently,
people acquire this from their families.

Cultural legacies help shape success

An important factor contributing to success is the culture that you embrace during your childhood. For instance, the KIPP
Academy in New York is based in one of the city’s poorest neighbourhoods. While it does not offer typical benefits such as small
classes, or extraordinary classmates, the school is one of the best public schools in New York because of its focus on cultural
legacies. Students are selected via the lottery system and many hail from disingenuous backgrounds, but KIPP ensures that the
children are best equipped for success through simple measures such as longer school hours and a higher focus on homework
clubs and extracurricular activities. This helps KIPP’s students perform well and achieve success in their college applications as
well as their future lives.

There is no questioning the fact that success is aspirational and requires a variety of elements to be actualised but outliers are
the people who receive an opportunity and run with it. They may not have ideal IQs or childhoods, they may not even be great at
studies, but they have the capability to succeed when presented with the possibility. And that is what makes all the difference.

Interestingly, outliers play a very important role in financial planning and wealth creation. If your portfolio has the outlier
investments that perform then you will be on your way to creating great wealth. On the other hand, if you invest in outliers that
don’t do well, then the impact on your investment portfolio could be significantly negative. So, the challenge is ‘how to pick the
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right outliers’. This is where mutual funds can be of great assistance. As you might already know, mutual funds are investment
vehicles that pool investor money and then invest that money in a variety of investment instruments that span equity, fixed-
income, commodities, etc. Mutual funds are managed by expert investment professionals who are supported by a team of
research analysts and governed by strict regulations and investment mandates. While some funds are passively managed, i.e.,
they follow a particular index, there are others that are actively managed. These fund managers actively try to identify outliers
and generate alpha. For example, there could be thematic, sector specific or mid and small cap mutual funds that focus on
identifying the lesser known companies that have the potential to generate significant future returns. These are the outliers
that can make your investment portfolio grow. While identifying these outliers can be challenging for retail investors, mutual
fund managers are trained to do just that.

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 The Snowball: Warren Buffett and the
Business of Life
Author: Alice Schroeder

A popular insurance industry analyst and writer, Alice Schroeder, met Warren Buffett when she published her well-accepted
research on Buffett’s investment company Berkshire Hathaway. Buffett found himself impressed by Schroeder’s grasp on the
financial world and her keen insight and this led him to offer her complete access to his files and himself, paving the way for The
Snowball: Warren Buffett and the Business of Life. Given her close relationship with Buffett, Schroeder’s book is peppered with
insightful comments about his childhood and the circumstances which enabled him to snowball his wealth and become the
acclaimed investor he is today.

Schroeder’s treatise on Buffett was named the top Business and Investing book on Amazon in 2008. Her penchant for all things
finance made her an expert on the matter and she was well known for her coverage of insurer AIG, tough stock calls, insightful
industry coverage and keen perspectives on the impact of terrorism on the insurance industry. She has invested five years of
research and writing into The Snowball and will offer you unprecedented access to the defining features of Warren Buffett’s
upbringing, early history, investing, and philanthropy.

Key Takeaways

· Patience, temperament, and starting young will work wonders for your investment journey.
· Avoid being too reliant on a single source of income – spread out your income stream to make the best of new opportunities.
· Maintain a strong focus on who you want to be, rather than on what you want to do.
· Stop worrying about aspects and events that are out of your control. Instead, focus on the things you can control to attain
success.
· Stay honest on your path to success – do not try fraudulent means.
· When you know something to be true, remain focused on your belief, even if people criticize your approach.
· Be extremely dedicated to learning your craft and then applying it to earn wealth.
· Start investing early to benefit from the tremendous power of compounding.

Warren Buffett’s investment journey

Even as a child, Warren Buffett was extremely interested in statistics and numbers and he applied his insight into his lifestyle
right from the beginning. At the tender age of six, when children are engaged in playing and learning basic educational skills,
Buffett began to earn money. He started out small – selling chewing gum door-to-door – to begin his career. Following many
such entrepreneurial tasks, he managed to build a corpus, formed a partnership with his sister, and entered the investing world.
His first investment was in Cities Services Preferred and following this step, Buffett never looked back. He built his empire from
childhood and remained committed to the journey, thus enjoying the fruits of compounding throughout his adult life.

Identify different income channels

Very few people end up becoming successful and wealthy by sticking to one source of income, especially in today’s fast paced
world where the job outlook changes at the drop of a hat. Buffett learned from his predecessors – he cites the instance of his
father’s friend, who was an absolute expert on shoe buttons, and believed that this niche knowledge made him an expert on all
other subjects. Buffett believed in finding opportunities to make money at all times, be it through ventures such as selling
chewing gum and used golf bats or delivering newspapers. There is dignity in every line of work, as long as you know where you
want to go from your humble beginnings. Buffett was extremely creative when it came to building sources of income and he
tried every route available from renting out his farmland to speculating on horses. He maintained this outlook towards income
sources even later on in his life, as is obvious from his multinational conglomerate Berkshire Hathaway which has interests in
diverse sectors such as rail transportation, insurance, manufacturing, retailing, and energy generation and distribution.

Build your future consciously

Given his intense focus from an early age, Buffett knew what he wanted out of life from his childhood itself. And, based on these
ideas, he managed to shape his future. For instance, he decided to enroll at Columbia University because he was keen on
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learning from investing greats Benjamin Graham and David Dodd. He knew exactly what he wanted, and who he wanted to be,
and he undertook the actions and steps necessary to make his vision a success. He was also very conscious about how he earned
his wealth. He took staunch efforts to avoid immoral means of earning money and was willing to give up on millions of dollars to
remain honest in his approach. His actions teach you that it is better to stick to your ethics and avoid shortcuts and fraud while
earning money and building wealth. Further, Buffett also believes in sticking to one’s internal scorecard or conscience as it helps
you remain focused on your values throughout your life.

Avoiding negativity in life

It is very important to understand that not everything will always be in your control. Many events in life, be it market volatility, or
personal incidents, may be out of your control and it is essential that you accept this fact without any negativity. Buffett believes
in keeping the ‘drain plug’ open, wherein he envisions a bathtub and allows his negative emotions to drain out through the plug
instead of dwelling on the same incessantly. In life, you should worry about the things that you can control and navigate for
success, instead of focusing on aspects which you cannot control. This will help you avoid unnecessary negativity while focusing
on the things that can be changed.

Undying passion towards your craft

You can be successful in any chosen field, as long as you remain committed and passionate about learning everything that you
can and applying the knowledge to craft a successful future. For Buffett, his passion and his craft was the stock market – he did
not merely like stocks, he was obsessed by the market. And this helped him learn everything he possibly could and then,
accordingly, craft his own success story. On this journey towards improving your craft and making a successful life, you will
undoubtedly face harsh criticism. Despite the negativity towards his approach, Buffett always remained true to what he knew
and believed in. For instance, it was his belief in his own convictions that led Buffett to take control of Berkshire Hathaway in the
sixties. It was his self-belief that helped him steer away from mass emotion and psychological bias and take contrarian views
when people got carried away by the technology boom in the 1990s. People sharply criticized his outlook on the sector and
ridiculed him when he stated that the tech boom wouldn’t last, only to see the sector lose 95% of the gains going ahead.

Break out of limiting circumstances

Buffett believes himself exceptionally lucky to have been born in the United States in 1930, widely considered the golden period
of opportunity. However, your circumstances at birth need not define your future – people born in different scenarios may not
be able to start investing as early as Buffett but that is no reason to not make the most of their own lives. As long as you take the
right decisions and strive to better your situation, you can attain success. All you need to do is break out of the limiting mindset
and circumstances. Further, once you do manage to elevate yourself, it is important to help those who face difficulties. Others
may not have made the sacrifices you made, or their vision may be faulty, but once you are in a capable position, your moral
compass should prompt you to help them the way Buffett did. Buffett believes that once you realize your potential, it is your
duty to give back to the society and the country that supported you in your vision. This is the aspect which has acted as the
bedrock to his philanthropic initiatives. Buffett has pledged to donate 99% of what he has earned, upon his death, even as he
keeps multiplying his wealth throughout his life.

Reputation and transparency

Buffett does not tolerate liars or people who do not share the whole truth. He, and other great leaders, have maintained a zero
tolerance policy for lack of transparency, and it has helped him earn success without worrying about the implications. He
believes that absolute transparency is the way to leading a stress-free life filled with peace. Further, Buffett has always held his
reputation higher than the money he can earn through disreputable means. In his own words, “It takes twenty years to build a
reputation, and five seconds to ruin it.” He believes that reputation far outweighs money and that is a good moral compass to
follow.

It is true that Warren Buffett was born in a golden age and received the necessary support to build his empire. The Snowball
teaches us that success need not be the bastion of the great – even common people can attain success as long as they take these
life lessons to heart and craft their journeys accordingly.

Inarguably, a book on Warren Buffet will be filled with great investment nuggets and should help you craft your own portfolio
strategy. There are so many elements that the book talks about. First is the importance of starting early – something that can
help you benefit from the power of compounding. Second, it talks about the need to diversify, whether it is your income streams
or your investment portfolio. And most importantly, it tells you the importance of maintaining transparency. Interestingly,

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mutual fund investments can help you easily embrace all of these imperatives. Let’s first start with the need to diversify. As you
might already know, mutual funds are investment vehicles that pool investor money and then invest it across a broad range of
asset classes like equity, debt, commodities, etc., and as per specific strategies and mandates. Further, there are also hybrid
mutual funds like the Balanced Advantage Fund that invest in both equity and debt instruments. They allow you to diversify
through a single investment, i.e., you get to benefit from the growth potential of equities and limit your portfolio downside
through exposure to debt. Now, comes the part about starting early and compounding. A great way to benefit from the power of
compounding is to invest in mutual funds via the Systematic Investment Plan (SIP) route. When you start a SIP, you invest a fixed
amount of money, in a mutual fund scheme of your choice and at time intervals that suit you best. As you keep investing the
fixed amount, the returns generated will start compounding. Last, and perhaps the most important, is transparency. Mutual
funds score well here. They are managed by experienced professionals, regulated by the Securities Exchange Board of India, and
publish monthly factsheets that tell you where your money is invested and how it is performing.

So, if you want to follow the path of Warren Buffet, then mutual fund investments might be a great option.

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 Common Stocks and Uncommon Profits
and Other Writings
Author: Philip Fisher

Popular for his buy-and-hold approach to investing, Philip Fisher is credited with influencing legends like Warren Buffet. A
renowned investment strategist, Fisher’s technique involved identifying long-term growth stocks and understanding their
underlying value through fundamental analysis. While his treatise Common Stocks and Uncommon Profits was written decades
ago in 1958, it continues to be a strategic bible for savvy investors. The book was written and published amid great prosperity
and the bull market phase post-World War II but it focuses on sustainable long-term growth, instead of short-term profit
booking, making it an excellent guide for investors keen on building their wealth over a period of time.

From tips on choosing the best stocks based on fundamental analysis to advising investors to look for businesses that play a
leading role in their segments, Fisher’s book is a compilation of his strategies and tactics. His fifteen-point strategy, espoused in
Common Stocks and Uncommon Profits, is considered an optimal way of approaching long-term investments. In addition to this
book, Fisher has also authored popular books titled Paths to Wealth Through Common Stocks and Conservative Investors Sleep
Well. He managed Fisher & Co. until 1999, when he retired from his post.

Key Takeaways

· Look for companies exhibiting long-term growth potential.

· Identify fundamentally strong companies with a focus on research and development and quality leadership.
· Consider every potential angle of research possible before investing in a company to avoid the scope of failure.
· Once you know the company you want to invest in, wait for dips in the price to enter at a lower rate. This will help you maximise
potential profits.
· Avoid the herd mentality and be sure of the choices you make.
· If you are a risk-averse investor, consider companies with strong organisational structures and robust growth potential.

Investment is a complicated game if you give in to the chatter surrounding the strategies at play. However, if you have your
tactics in place and a clear understanding of what to look for when considering a stock for investment, you will end up reaping
large rewards. This is especially true if you consider investing for the long-term. With Common Stocks and Uncommon Profits,
you will get a strong understanding of the questions you must ask and the aspects you should consider, before taking the plunge
and building your portfolio. The treatise will help pave your way to success by enabling you to optimally understand the market,
analyse stocks, take wise money decisions, and make smart calls on investment. The biggest lesson, however, remains the need
for patience and a long-term outlook.

Know how to analyze a company’s potential

Picking a strong stock is easy, as long as you ask pertinent questions such as:

· Does the company have significant sales growth potential for at least the next several years?
· Does the company’s management show the determination to continue developing its products and processes with the aim of
enhancing total sales after the existing growth potential is exhausted?
· Does the company exhibit a long-term view on profitability and have robust profit margins?
· What differentiates the company from its industry peers?
· Is the company known for its relations with its staff and customers?

These questions, in addition to an understanding of the underlying equity financing structure and the company’s policy on
honesty and integrity, will help you conduct a comprehensive market research and identify companies which depict robust
potential for long-term and sustainable growth. Once you zero in on potential investment choices, go through their activity
profile and analyse their industry, competitors, main clients, and money management strategies. This will help you develop a
more holistic understanding of the investment scope. While it is challenging to figure out these aspects, you can use the highly
effective scuttlebutt method for better outcomes.

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Try the Scuttlebutt Method

If you wish to know the important aspects about the company you want to invest in, it is imperative that you contact the
shareholders directly and access first-hand information. This is known as the scuttlebutt approach as, once you get the details
directly from the shareholders, you will be in a much better position to take well-informed decisions. Also consider their
reputation with regards to employee and customer satisfaction to get a fuller picture of the company’s growth prospects. It is
true that this method will be very time-consuming but today, with social media and a wide degree of information sharing across
platforms, you are in a better position to know all the details. Still, to minimise the time spent on accumulating information, pick
only the best and most impressive stocks to work with. This will help you optimise your research and offer you the best possible
outcomes. Once you find companies which align with your requirements, you can go ahead and consider them as attractive
investment options.

Enter at the right time

Every company goes through good and bad times. While robust companies manage to emerge unscathed even after economic
downturns, poorly managed companies succumb to the pressure. Once you know the companies you want to invest in, and are
sure of their growth potential, wait for the right time to enter the market. Undertake a calculation of the company’s price-
earnings ratio to determine the real price of the stock and ensure that you don’t pay any higher. When you follow this strategy,
there is a great likelihood of strong profits in the future, allowing you to exit your positions with a neat sum of money in hand.
Instead, if you give in to the herd mentality and buy a stock when it is at a considerable upside, your potential for making a profit
drops considerably. Remember, the time to start buying comes when the price of a strong stock begins to drop.

Avoid panic and emotional bias

If you look at the market crashes on a historic basis, most of the damage occurs when people give in to their emotional biases
like fear or greed. If a stock is seeing a bad patch, or the market is in a downturn, you might fear losing your money and begin to
sell off your positions. This leads to an incremental plunge and erases a lot of the underlying value. However, time has shown
that fundamentally strong stocks always manage to recover from their lows so, even if your portfolio is in the red, do not give in
to panic. Stay confident in your choices and hold your stocks till the market starts to, inexorably, rise up again. This will help you
avoid premature losses and ensure that your nominal losses do not transform into real ones.

Mature companies for conservative investors

If you are an investor who prefers to avoid risk at all costs, people may tell you that the stock market is not the place for you. That
is not true! You can look for companies with a strong track-record of growth and stable profits to invest in and participate in the
growth of the markets while earning robust returns. Look for mature companies with a steady focus on R&D, excellent
leadership, and strong foundation in the sector. Such companies may not offer high returns but you can rest assured that your
investment will not post sustained losses. Stick with such companies which exhibit a long-term duration and remain invested for
the longer period to realize optimal returns.

Should you go the dividend way?

Many investors are keen on picking stocks which offer high dividend payments but it is not, necessarily, a good option. What
matters is whether the company is using the underlying capital to offer you the highest possible value. This means that
companies which avoids dividend payments to reinvest the capital in building new plants or product development are better
poised to offer you strong returns in the future. Understand whether the company is offering you a small payout instead of
building future potential before you purchase a stock and remember that a focus on futuristic growth is always better than small
dividends. However, also note that the dividend could be a source of regular income for some investors. In such a scenario, if you
actually depend on the dividend for your expenses, pick companies which have regular dividend payouts but still maintain a
focus on building capacity for the future.

Things you must avoid

As an investor, there are some things you must, absolutely avoid doing if you wish to build a sound portfolio. These include
aspects such as avoiding investments in promotional companies with little or no turnover, taking investment decisions based on
just the positive elements showcased in companies’ annual reports, and waiting for the stock price to drop to the exact price you
wish to pay. If a strong stock is indicating reasonable pricing, chances are that its prices will only go up from there so don’t wait
for it to drop to the level you have in mind. Also avoid going over the top with diversification as this will lead to lower potential

18
returns and dilution. Look for strong companies that have lived up to your fundamental analysis requirements and diversify
astutely for best returns.

If you read through Fisher’s book, you will learn two fundamental things. One is how to pick up great stocks and two is how
difficult it is to adopt a DIY approach to stock investing. Which is why, if you really want to create a robust equity portfolio, then
you should consider investing in mutual funds. It is well-known that mutual funds are investment vehicles that give you an
opportunity to build a diversified portfolio spread across multiple investment types like equity, debt, and commodity. However,
even within a particular asset class, like equities, mutual funds offer multiple different investment options. For example, as
mentioned in the book, if you are an investor who does not have a large appetite for risk then instead of completely avoiding the
equity markets you can consider investing in mature companies. With a mutual fund, you can easily get this exposure by
investing in large-cap equity funds. This way, you can meet multiple investment requirements and follow the approach that
best suits you, with a single investment vehicle.

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 What I Learned Losing a Million Dollars
Author: Jim Paul and Brendan Moynihan

While investing greats and legends offer brilliant advice on how to mint money and invest effectively, sometimes, it is also
important to focus on the underbelly of investments. As the title of Jim Paul and Brendan Moynihan’s book suggests, this
treatise is all about failure and, most importantly, learning from failure. Jim Paul’s story acts as a cautionary tale for the many
Icarus’s of investing – a tale of rising to the top and then losing everything in a wink.

Paul made his mark as the governor of the Chicago Mercantile Exchange, rising from his humble origin in a small town in
Northern Kentucky. However, he then made a disastrous decision which ended up in the loss of everything he had struggled to
achieve – his position, his wealth as well as his reputation. A frank and disarmingly honest analysis of what went wrong, What I
Learned Losing a Million Dollars is both a guide on what not to do and a guide on some of the biggest lessons on managing
wealth. The book, which won the 2014 Axiom Business Book award gold medal, will also take you through the psychological
factors which triggered poor financial decisions in various economic sectors. The book also offers lessons on strategies for
avoiding loss and means to dodge the dangers inherent in investing, trading, and speculating.

Co-author Brendan Moynihan, editor-at-large for Bloomberg News, is known for his writings on the economy and Wall Street.
Previously a trader and risk manager, Moynihan also has strong knowledge of the investment landscape and brings his expertise
to the table through What I Learned Losing a Million Dollars.

Key takeaways

· Participation in the market cannot be described through terms such as right, wrong, win or lose. Decisions can be good or bad
but rarely are they purely right or wrong.
· Trading is the only area where you have the potential for initial and temporary success.
· There are not too many ways to lose money in the market, so, being cautious can help you avoid such pitfalls.
· As a trader, you need to acknowledge and accept that some decisions will end in loss.
· You should have some rules and tools to enable you on your trading and investing journey.
· While your rules may prevent you from benefiting through varied market opportunities, they will help you avoid immeasurable
losses.
· As an investor, you should be able to calculate and, thereby manage your losses.
· Make all your trading decisions objectively, in the pre-trade moment, to ensure that you are not swayed by emotions like greed
or fear.

As an investor, it is imperative that you focus on two aspects – making profits and avoiding losses as far as possible. If you do not
focus on the latter, you will end up losing a million or even more dollars, thus eroding all your hard-earned wealth. By
understanding your psyche, and the psyche of the market, you can work towards creating rules and tools which will help you
avoid losses and remain in control for most part of your trading journey. While it is true that there may be some unprecedented
events to cope with, having a keen understanding of the fallacies and opportunities will keep you safe in the long run. As is often
said, fools rush in where angels fear to tread. Take these lessons of failure to heart and ensure that you do not face such a
tragedy in your own journey towards wealth.

Lessons from a trader’s recollections

In every field and sector, there is one thing that is certain, and that is failure. In fact, each and every successful investor
understands and accepts the fact that failure is, at the end of the day, just a part of the larger game. In addition to this very
essential understanding, they also realise that success can be built upon repeated failures, as long as you do not take the failures
to heart. A frequently quoted example here is that of Thomas Alva Edison, the scientist credited with the invention of multiple
gadgets. Before achieving success, he failed 10,000 times. What made him a success was his perseverance as well as his
willingness to learn from his failures. As an investor, you must remember that while smart people learn from their own mistakes,
it is the wise that go farther, for they learn from the mistakes made by others.

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Learning how to not lose money

The market offers you multifarious ways of making money. However, the one link that connects most successful investors
revolves around the ability to not lose money. The market is made up of five types of people including traders, investors,
speculators, bettors, and gamblers. Understanding their psyches and learning from their journeys can help you create a
roadmap that is both strategic and poised for success. Further, your losses can also teach you various lessons, the first being that
loss can be both external and internal. While external losses are objective, internal losses are subjective and personal. Facing
such a loss can trigger feelings such as denial, anger, bargaining, depression and, finally, acceptance.

Understanding the nature of emotion

A deep analysis of the market indicates that, usually, losses are triggered by emotion. There are many instances of a market
being driven by a crowd’s sentiment, including the tulip frenzy in Holland, in the year 1637. In such scenarios, if you know where
you stand and have a longer-term horizon in mind, you would do well to take a contrarian approach, which is a position opposite
to that of the larger crowd. When the overwhelming sentiment fades eventually, you stand to make enormous gains. While the
crowd usually follows aspects like feelings, emotions, and impulses, you should, as an individual, go with reasoning,
deliberation, and analysis as these will keep you in good stead and enable you to avoid the fallacies being perpetuated by the
crowd. You must never buy, sell, or trade based on hope or fear because these can lead to mania and panic, when experienced
by the crowd, thus leading to herd instinct. Most of the time, people lose money because of psychological factors, and not
analytical ones. Therefore, it makes sense to, as an investor, stick with analytical decisions. Avoiding crowd trades is another
important lesson to internalise.

Rules of the game

The market, in every sector and geography, has one common factor and that is uncertainty. Markets are nothing if not volatile
and you can never be sure when your decision will be good or bad. In this scenario, to ensure profitability and mitigate losses,
you need to have some rules and tools in place as these can help you deal with the unending uncertainty in a manner that is
suited to your investor profile. While dealing with market uncertainty, you can follow three tactics – engineering, gambling, and
speculating. To know where to proceed, you need to first assess and understand what type of participant you want to be – are
you a gambler? Do you enjoy speculating and placing your bets accordingly? Or do you look for ways to engineer success? Once
you figure out your personality and type of investing, you can then develop rules, establish controls, and come up with a suitable
plan. A strategic plan primed for success should consist of the following aspects – time of entry, the stop loss position, and the
price objective. Even before you enter the field, determine your stop loss as this will decide how you weather the storm.

Having a plan in place is imperative to avoiding losses because the failure to chart and follow a plan is one of the main reasons
behind major market losses. After all, there is no way to guarantee perfect timing – there is no way for you to time the market
correctly. While you may have a fluke or two, this cannot be maintained on a regular basis and, sooner or later, your attempts at
timing the market will lead to unbearable losses. In such a scenario, having a plan in place can help you remain objective. It can
ensure that you follow the rigours of the plan, instead of getting swept up in emotions such as greed or fear, which,
consequently, lead to irrational decisions.

As an investor or trader, always remember to have a plan in place, with fail-safes, before entering the market. Do not leave the
plan in your mind because, in moments of stress, your mind can play tricks on you. To avoid such a problem, commit your plan to
paper and memorize it as well. Spending time with your plan will help you determine its fallacies and also help you commit it
into your psyche. Once you do this, you will find that emotions do not sway you unnecessarily. You can find examples of great
and effective planning from the reports published by various platforms. You can glean insights from these and work out a plan
that suits your unique requirements.

For an investor, entering the market involves parting with your capital, and this parting may be long-term, based on your time
horizon, or for a few days. However, if you are not careful, this parting could also be permanent, which is a position none of us
wish to be in. To do better, you must learn from the wisdom gathered by investors who came before you. After all, there is no
need for you to lose a million dollars just to learn the lessons of prudence. Analyze and gather insights from the mistakes of your
predecessors and reduce your chances of losing your hard-earned wealth.

Indeed, mistakes, whether your own or those made by others, can teach you a lot of investing wisely. However, another great
way to invest is to let experts with the relevant experience manage your money. Take for example mutual fund managers. These
are experts who have experience, have already made and learnt from their mistakes, and have, as a result, established strong
strategies that can help you potentially limit your losses and extend your gains. From that perspective, mutual funds are an

21
excellent vehicle that allows you to invest your money as per your return requirement and risk profile and have it managed by
expert professionals. Additionally, even with mutual funds, there are certain options that can give you visibility, some degree of
certainty in earnings, and potential to limit losses. An ideal example of such a fund would be a Target Maturity Fund. These funds
are passive debt funds benchmarked against the underlying bond index. They come with a pre-decided maturity date, making it
easier for you to choose funds which align with your investment horizon. Target maturity funds can be of two types – exchange-
traded funds and index funds. They can be a great option for you to earn high, tax-efficient returns, in a safe manner, because
they invest only in government bonds, state development loans and PSU bonds, which are all either sovereign or quasi-
sovereign in nature. This is just one of the many options available for investment in the mutual fund offerings. There are multiple
options that can help you meet your specific requirements.

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 Common sense on mutual funds
Author: John C. Bogle

The founder of Vanguard Group and a world renowned proponent of the index investing strategy, John Bogle, also referred to as
Jack, was the author of several popular books on the investing milieu, including Common Sense on Mutual Funds. Bogle has
been credited with revolutionizing the mutual fund landscape by spearheading index investing, a strategy which enables
investors to participate in market growth by tracking the growth of the underlying indices. Bogle’s aim in creating this strategy
was to help average investors spend less on investing, thus helping them invest a larger part in the actual fund. Passive funds,
unlike active funds, charge a lower commission as the scheme tracks the market and requires no active management from
professional mutual fund managers, except for ensuring that the scheme remains closest to the underlying index. Given the
ease of tracking the broader market, index schemes also act as a simpler and easier way of investing, making it more accessible
to the laypeople.

Bogle passed away in 2019 but his strategy and advice remains as relevant today. His flagship fund, which was created with the
aim of tracking the S&P 500 index, continues to follow his core philosophy. This was the first index fund targeted at retail
investors. His treatise, Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, delineates his ideas and
advice on investing in mutual funds, with the aim of attracting high returns in a low expense model. Bogle is also known as the
Father of Passive Investing, making him a guide to countless number of new age investors keen on the passive investing style.

Key Takeaways

· Limiting costs can help you realise significantly higher returns on your investments.
· Since markets are volatile in nature, it is better to find a fund which matches the returns offered by the market, while charging a
low fee.
· While stocks are considered riskier than bonds, if you are keen on long-term wealth generation you should focus on stocks for
the firepower it provides.
· When considering mutual fund options, look for schemes which operate in “the most economical, most efficient, and most
honest way possible”.
· “The dream and the will to found a kingdom, the will to conquer and to succeed, and the joy of creating and exercising one’s
energy and ingenuity” are the factors which create a successful entrepreneur.

Investors today are spoilt for choice when it comes to investment options and avenues. Even if you choose to go with a mutual
fund, you still have to make a variety of decisions – should you pick a large capitalisation fund from the equity category, or a
balanced advantage fund which divides investments in both debt and equity? Or should you just stick to debt, since it is
considered a safer option? Bogle, a major proponent of passive investing, states that investors must look at the equity market to
realize strong gains. He furthers the case for passive investment in index funds by saying that while you may be able to pick a
stock or two which manage to beat the market index in the short-term, stocks tend to average out over the longer term. And, the
amount you spend on investing in active funds will not help you outrun the market going ahead. Therefore, Bogle advises you to
park your funds in low cost index funds and realize returns which are in line with the broader market.

Limiting costs helps in the long run

While you may be tempted to invest in actively managed funds as you might expect these schemes to beat the market, the
higher expense linked to such funds should act as a concern. Actively managed funds could cause your portfolio to lose value at
three levels – the higher underlying fees being charged, the constant turnover in your portfolio, and the higher taxes you attract.
While asset allocation and diversification are important, limiting the cost is more important, especially when considering longer
term scenarios. Further, with passive fund investments which track the benchmark index, you can ensure optimal
diversification at a fraction of the fees being charged by active funds. Therefore, limiting costs is a common sense strategy for
mutual fund investors as the lower costs ensure that a much larger portion of your money is parked in the investment, enabling
higher future returns.

Simplicity is the best way to go

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While you might work really hard at curating your portfolios for the best returns, one of the biggest things that you must
consider is the fact that simplicity can take you a long way. Index funds mirror the market as a whole and they allow you to gain
exposure to the best companies in the market. And that too, at a lower cost. Index funds help you simplify your portfolio, thus
taking out concerns about tracking the market or micromanaging your portfolio regularly. Further, the simplistic nature of index
funds also keeps the cost or fee low, benefitting you in the long run. Index funds are also a great bet since you do not really know
how the market will move in the years or months ahead. However, historically, the market has offered significant returns in the
long term. In such a scenario, committing to a passive fund and mirroring the market helps you make the most of the
opportunities.

The question of stocks vs bonds

If you do not believe in taking on risk, should you stick with bond investments? Well, history indicates that people keen on long-
term investments should focus on stocks as they offer much higher historical returns when compared with bonds. This means
that you do not have to worry about the underlying risk, as long as you stick with the market index and stay committed for a
longer duration. According to Bogle, “The data makes clear that, if risk is the chance of failing to earn a real return over the long
term, bonds have carried a higher risk than stocks.” However, that does not mean that you should steer clear of bond
investments. Allocate a portion of your corpus to bonds as an insurance against short-term or even slightly extended slump in
the stock market while also diversifying your portfolio.

The risk-return equation and the role of time

It is frequently asserted that risk and returns enjoy a directly proportional relationship. Therefore, the higher the risk, the higher
is the potential for returns, and this is nowhere as evident as it is in the stock market. It is impossible for you to find a fund which
will beat the market continuously, no matter the expertise of the fund manager. Therefore, it is advisable to instead choose a
fund which offers market-linked returns, but at low costs. Further, since volatility is a part and parcel of the market, you should
work on making time your best friend. When you start investing early, and leave the money parked in the market for a longer
time, you give the market time to recoup your losses and solidify your gains, ensuring high returns in the long run. Indeed, the
longer your time horizon, the less variable your average annual returns will be, setting you up for a happy future.

Choose fund houses offering best practices

As an investor, you need to look at everything, from your fund house to the scheme, before you invest. Even if you choose to
invest in passive funds, you must also consider which fund houses offer the best returns. Look for mutual funds which are being
operated in the “most economical, most efficient, and most honest way possible” as this will ensure that your corpus is safe and
secure. Also look for fund houses which are committed to benefiting their clients, rather than just keeping an eye on profit
generation.

Lessons on entrepreneurship and leadership

It is not easy to be an entrepreneur. It is even more difficult to be an exemplary leader. The story of Vanguard indicates how Bogle
displayed the necessary tenets of a successful entrepreneur, which includes the dream and will to foster a kingdom, the
willpower to succeed and feeling the joy inherent in creating something ingenuous. According to Bogle, leadership can be
defined in the following principals – “Readiness, foresight, a sense of purpose, passion, the idea of the leader as servant, failure,
determination, patience, and courage. Based on my experience, these are nine of the principal attributes essential to effective
leadership.” A leader must lead by example and stay true to his principles if he is to be a true and exemplary leader.

Bogle believed that, for investors, it is enough to have a good plan. Obsessing on creating the perfect plan or the perfect
portfolio will only lead to fallacies and a waste of time. It is simpler, easier and more lucrative to focus on the strengths of the
market and participate in its growth by investing in passive index funds. In addition, the low cost of passive fund investment is
another way to boost your wealth and retain tremendous returns over the longer term.

For a long time now, both investors and fund managers have been focusing on trying to beat the markets. However, more
recently, many investors have realised that getting returns in line with the market and at a certain level of risk, can be much
better than trying to beat the market. What makes this proposition even more compelling is the fact that it is also relatively
more cost efficient compared to actively managed funds. But the key question for investors is how you can generate market
returns. The answer lies in mutual funds. As it is well-known, mutual funds are investment vehicles that pool investor money
and then invest it across multiple instruments and strategies. One of the options available in the mutual funds space in passive
funds, i.e., Exchange Traded Funds (ETFs) and Index funds. These funds aim to perform in line with an index or basket of

24
securities by creating a portfolio that mirrors their composition and passively holding on to the portfolio. As a result, they are
able to generate remains similar to the market, adjusted for transaction costs and tracking error. This way, you can easily enjoy
index returns, diversify your investment portfolio, and reduce the overall risk of your investment portfolio all the while paying
for lesser expenses.

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 The Wisdom of Success: The Philosophy
of Achievement
Author: Andrew Carnegie and Napoleon Hill

The treatise titled The Wisdom of Success: The Philosophy of Achievement emerged from an interview between Andrew
Carnegie, a Scottish American industrialist and philanthropist and self-help author Napoleon Hill. Known for having led the
expansion of the American steel industry, and reputed for becoming one of history’s richest Americans, Carnegie invited the
world’s wealthy to utilise their riches to improve the society as a whole. He began his career as a telegrapher and created
enormous amounts of wealth through investments in industries such as railroads, railroad sleeping cars, bridges, and oil
derricks. He was also a bond salesman who raised large amounts of money for American enterprises in Europe.

As a self-made industrialist and philanthropist, Carnegie is renowned for his wisdom and achievement and his lessons on
success are jotted down in the book The Wisdom of Success: The Philosophy of Achievement by Hill, well known for publications
such as The Law of Success and Think and Grow Rich.

Key takeaways

· Definiteness of purpose is imperative to attaining success. If you want to work towards success then you must develop a
definite purpose which fosters a burning desire, never leaves your thoughts, and becomes an entity to which you can devote
your life.
· Nothing is as difficult as taking the first step from poverty to riches.
· You must develop a positive mental attitude to propel your thoughts and plans into actions aimed towards success.
· Money earned is infinitely more powerful than money being given away as charity.
· Success can be defined as the “power with which to acquire whatever you demand from life, without violating the rights of
others.”
· The desire for knowledge and the willingness to work towards it is the greatest asset that you can possess.

The treatise is filled with practical lessons on how you can achieve success, and acts as a guiding light with its seventeen well-
charted principles of success and achievement. These include the importance of developing definiteness of purpose, using the
mastermind principle, fostering a personality that is attractive, going the extra mile and using organized individual endeavour,
among many others. One major lesson offered by the book is that, unless you accept something as a failure, it is not permanent.
Further, every failure and success in life is ascertained by your habits – and self-discipline involves the mindful adoption of
constructive habits aimed at becoming successful. According to the authors, 98% of the world’s populace has no definite
purpose in mind, other than working for a daily wage, and this is the issue which sets them up for failure. Which means that, if
you rethink your priorities and develop an actionable purpose, there is nothing stopping you from attaining all the success you
ever dreamt of.

Overarching principles to which you must commit

There are a few things every individual must realise, and the first is that a majority of the people on this planet do not move
beyond the wishing stage in their lives. Neither do they understand that no great achievement is possible without enlisting the
help of other individuals. To create a definite purpose and achieve success, your mind needs to be free from negativity, doubt,
fear, and the limitations you impose upon your own capabilities. Remember that when you have a goal in mind, you can achieve
more with two minds, than when you depend only on yourself. You can arrive at personal power by creating a winsome
amalgamation of individual traits and constructive habits as these will help you develop a definitive purpose and also help you
achieve the same. Your personal power is composed of ten qualities and each of them are imperative to attaining your goal.
These can be termed as the definiteness of purpose, promptness of decision, soundness of character, intentional honesty, strict
discipline over your emotions, obsessional desire to render useful service, thorough knowledge of your occupation, tolerance
of all subjects, loyalty, faith, unceasing thirst for knowledge, and the alertness of imagination. Once you begin abiding by these
universal principles, there is no obstacle which is too big to overcome.

Understanding the mastermind principle

As we have learnt, bringing two or more minds together will help you achieve success more sustainably than undertaking a
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lonesome journey. To leverage the mastermind principle, you must select others who have the ability to perform the necessary
tasks while working towards a common goal. Since 98% of the populace is only interested in drawing a monthly wage, you can
create a winning model collating their abilities while working towards communal wellbeing. You can do this by utilising the
major motivators of voluntary action, which include the emotion of love, the strong desire for financial gain, self-preservation,
and freedom of body and mind as well as the inherent need for self-expression and perpetuation of life in the aftermath of
death. People are also driven by negative emotions like fear, anger, and jealousy and if you learn to harness these towards
amplifying the greater goal, then you will be able to move unambiguously towards success. Further, you can also develop your
knowledge and ability to leverage the mastermind principle by consistently reading constructive books and boosting your
mental strength.

Fostering an attractive personality

Many successful people attain their goals because of their personalities and the way they influence the individuals they meet
along the way. You can foster an attractive personality by developing a positive mental attitude, ensuring pleasant facial
expressions and body postures, determining the nature of every emotion, being flexible, and possessing the ability to modify
every thought you release into the universe. If you have a sincere purpose and a courteous demeanour, you will find success
easier to achieve. You must also work towards having faith and a sense of justice as these two aspects help mould your character
and enable you to navigate failures with equanimity. Be mindful of your traits and habits and always strive to turn towards the
constructive path.

Be creative while going the extra mile

Most people focus on doing the bare minimum possible – be it in their daily lives or their careers. Learn to render more and
better service than what you are being paid for and make this a habit. Your capability for offering service should be the
benchmark, rather than the least you can do and never do this in a boastful manner. Every individual today is controlled by the
limitations they place upon their own minds and abilities. When you go the extra mile, and bring your creative abilities to the
front, your actions will receive favourable attention and help take you ahead of the curve. Going the extra mile and
understanding your innate capabilities will also help you arrive upon your definitive purpose. Unleashing your creative juices
will also empower you to become a better leader.

Lessons in self-discipline, organised thinking, and failure

As a person aiming for success, mastering your own thoughts is an imperative because, if you cannot control your thoughts, you
cannot control your deeds. Be self-disciplined and learn to organise your thoughts and emotions as there are energy forms
distributed through your brain. Every thought has some intelligence behind it and if you can harness this while organising it,
your path to success becomes easier. Alternatively, negative thoughts can prevent you from reaching your potential so you must
be conscious of what leaves your mind and how. The next important quality is to learn from your failures. Realise that these are
but temporary and only view them as a learning opportunity. You can train your subconscious mind to convert all your failures
into an inspirational urge towards exerting greater effort.

Look for inspiration and stay focused

When you are inspired and have your purpose front and centre, you will be fuelled by passion and enthusiasm which will enable
you to overcome the greatest calamities and fatigues. To remain inspired, you must, consciously, do away with negativity. In
addition to looking for inspiration, you must also remain focused as this is the only way to combine all the faculties possessed by
your mind and concentrate on achieving your goal. If your attention wanders away from the purpose, you will lose out on
valuable time and opportunities. You must prepare to remain focused and this can be achieved through ceaseless organisation
and systematic planning.

Be a team player

To achieve the most successful outcomes, you must become a good manager capable of coordinating teamwork in an effective
manner. In addition to teaming up with like-minded individuals, you should also budget your time and money in a manner that
ensures sustainability. You must supplement your purpose with proper time management and rest to ensure that you do not get
burned out on the road to success. Recreation can help you reenergise yourself while also boosting your creativity and focus so
divide your day into work, sleep and recreation to remain motivated and focused. Look at your recreation time as a period of
opportunity where you can assimilate new ideas and come up with new approaches to problems.

27
While there is no easy path to success, there is a way to achieve your objectives, as long as you have a clear purpose and know
the way to the top. Never underestimate the power of becoming a mastermind and take all possible efforts and actions to
become the elusive 2% of the populace that works towards achieving success rather than just surviving on their monthly wages.
And, once you achieve your purpose, remember to share the fruits of your labour with the less fortunate as this will bring you
great satisfaction and a sense of achievement.

While you create a clear pathway to success, you must also understand that achieving financial success is a key determinant of
overall success. Further, the way you save and invest, and especially your investment vehicle of choice, can have a significant
impact on your financial journey. In that regard, mutual funds can be an ideal investment vehicle that can help you achieve your
multiple investment goals and get on the path to financial success. Mutual funds are an investment vehicle that pool investor
money and then invest it across different asset classes like equity, debt, commodities, etc., and across varied strategies and
themes. As a result, they help you achieve your multiple financial goals while meeting your risk and return requirements. They
help you overcome your limitations in terms of knowledge about investments and behavioural biases by adopting a systematic
and disciplined approach to investing. Thus, they can be a good vehicle to take you ahead on your path to success.

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 The Misbehavior of Markets: A Fractal View
of Financial Turbulence
Author: Benoit Mandelbrot & Richard L. Hudson

Authored by one of the most famous mathematicians the world has ever seen, Benoit Mandelbrot, The Misbehavior of
Markets: A Fractal View of Financial Turbulence, is a revolutionary assessment of the standard tools and models employed in
modern financial theory. Known as the inventor of fractal geometry, Mandelbrot had given 40 years to the study of the
mathematics which is intrinsic in space and natural patterns. Similarly, in this treatise, he has applied his expertise in fractal
geometry to better understand and analyse financial turbulence and the patterns exhibited by the market. Through his
experiences in fractal geometry, Mandelbrot, along with co-author Richard L. Hudson, will show you how the markets are
actually far riskier than you probably realise. The treatise espouses on a variety of events, from the movements in IBM's stock
price and the Dow Jones to cotton trading as well as the Dollar-Euro exchange rate, making for an insightful and enlightening
read.

Mandelbrot was a Polish-born French-American mathematician and polymath and his broad interests were focused on the
practical sciences as well as the uncontrolled element in life. His easy access to IBM's computers ensured that Mandelbrot was
among the first few to use computer graphics while creating and displaying fractal geometric images. This led to him discovering
the Mandelbrot set in 1980. In writing the book, Mandelbrot’s co-author was Richard L. Hudson, and Hudson was the managing
editor of the Wall Street Journal’s European edition for six years. Prior to that, Hudson was a Journal reporter and editor for
twenty-five years.

Key takeaways

· One of the biggest reasons why you might end up losing money in the markets is that you probably underestimate the
underlying risk
· Frequently used mathematical and financial models are based on faulty assumptions, leading to greater risk
· Your ability to be rational is significantly lower than what is assumed by popular financial models
· Often, the assumptions made by investment managers are flawed and they end up underestimating the potential of major
market moves, be it crashes or booms
· Extreme market movements are more frequent than financial models suggest
· The dynamics of the market can be best described as a fractal phenomenon

Most of the financial theories and advice shared by financial legends and investment ventures follow a primary belief – you
should be rational when they deal with money. There are many popular quotes which state that you should be logical when
investing, for example, you should be greedy when the market is fearful and fearful when the market appears greedy. However,
as human beings, money is an extremely personal aspect and staying rational can be a big challenge. Further, most of the
financial models make an incorrect assumption – that all investors follow the same strategy. This leads to a cookie-cutter
formula, which could end up misleading you and result in unnecessary losses. In addition to these major lessons, the treatise
also offers many more nuggets of wisdom which serve as an interesting financial lesson for you.

Humans are not very rational

One of the biggest fallacies made by mainstream theories is that most of them assume that human beings are rational and thus,
all their investment decisions are driven by rationality. Sadly, most of the investors today are not as rational as the theories
believe, leading to a fault in the predictions and assumptions. Most dominant theories in finance equate human beings with
data. However, that is a terrible error as human beings have a number of quirks and dissimilarities. As a human being, you would
often tend to misinterpret information. This will consequently lead to further errors in calculation and outcomes. Additionally,
many theories also have a habit of assuming that all investors follow the same strategies. This cannot be further from the truth.
You are a unique individual. Your eccentricities, choices, return requirements, risk profile, etc., are all unique. Hence, it would
become very difficult to deduce how you would react in a certain market condition and then assume that everyone in the
market will react in a similar manner. This is what leads to the failure of financial models. One more thing to consider here – no
two investors are fully alike – everything from their risk appetite to their time horizon and return requirement may vary, and
therefore, cookie-cutter formulas and financial models will only end up as loss-making propositions.
29
Markets are extremely volatile

Most investors tend to believe that the market is not very volatile. This might sound a bit unbelievable, considering that most
investors avoid investing in equities due to the inherent volatility of the asset class. However, the fact of the matter is that even
though you might view the stock market as volatile, you still can end up underestimating the extremity of the price movements
and jumps.

Fractal geometry proves us wrong and indicates that prices jump significantly in value, from one moment to the next. Orthodox
financial theories have an assumption – prices glide, they do not jump. And even when they do glide forward or backward, they
are regulated by normal distribution or the tendency to stay close to the mean. These theories, therefore, assume that large
variations from the mean would be extremely rare. This belief prompts you to trust the market implicitly and, when the market
eventually ends up shocking, they cry foul. However, just the assumption that the fluctuation in prices is bound by normal
distribution is faulty, and it is this assumption which leads to unexpected and unforeseen losses.

Price changes are interlinked

Another fallacy propagated by orthodox financial theories revolves around the assertion that changes in price are independent
from each other. Over the years, multitudes of empirical studies have indicated that price movements are not completely
independent. Indeed, a study by economist Campbell Harvey demonstrated that prices do follow trends, and these trends lead
to interlinking between movements. So, if there is a news update about some company, it is likely that it will result in some sort
of price movement for the company’s stock, and for its competitors, be it positive or negative. This depicts the interlinking
between prices, and is a factor that needs to be considered when making investment decisions.

Complex aspects require complex tools

You can’t analyse or understand every aspect of investing through the same set of tools. It is important to understand and
accept that some things are naturally complex or rough, and therefore, their comprehension and exploration would require
similarly complex tools. Previous studies and theories considered irregularities and shifts from the norm as the exceptions, with
the normal or regular being the rule. However, these irregularities, represented as meaningless aberrations forming near the
perfect shape of the graph, have now been shown to be significant. Finance and financial decisions can hardly be considered
normal or regular, what with every individual being different and coming with their own pre-conceived notions. The market is
an inherently complex beast, and, to actually make sense of it, you need tools which are attuned to this complexity. And
financial turbulence is one such aspect, with the market frequently experiencing sudden and extreme changes in stock prices.
While mainstream financial theories try to make sense of these aberrations, they are not really rare, but rather, much closer to
the market norm, and need to be comprehended as such.

Market dynamics – A fractal phenomenon

One of the earliest instances of the market not adhering to orthodox financial models came about when, in 1961, Harvard
professor Houthakker attempted to fit price records of the New York cotton exchange into the Bachelier model. Then came the
revelation – the cotton market was anything but smooth and, therefore, it could not be contained in a model which focused on
regular patterns or normal distribution. The price changes indicated enormous leaps, and the mean magnitude of these
depicted significant variation. In this scenario, there was one model which could help – fractal geometry. Using the power law,
which is usually applied to understand statistical relationships, the price movements could be analyzed effectively. Power laws
and fractal geometry exhibit a phenomenon called scale invariance, which means that, even at any magnification of an object, a
smaller part of the object would remain similar to the larger whole.

Advice to investors

While many financial theories may appear extremely complex and confusing, there are some simple things you must keep in
mind. First and foremost, you need to be aware of the risk posed by the market. Do not give in to euphoria and follow the lead, as
this may lead you to a financial disaster. If you are following an investment model, then you must make sure to dig in and
understand the assumptions. You must never blindly trust a model just because someone tells you to. Also, understand that the
market will not move in line with your expectations. Just because people believe that the market will rebound, after a fall, does
not mean that it will stop falling at a certain point. Indeed, there is no way to absolutely discern when the market will stop falling,
or rising, so take decisions based on your investor profile and return requirements, rather than remaining blindly committed to
the market.
There is no clear answer when it comes to the market – it is up to you, as a trader or an investor, to learn, adapt, and model your

30
behaviour in line with every piece of information or news that comes your way. Be open and flexible to new data, and do not
keep your mind shuttered to new possibilities. Be willing to change your strategy, when required, and be open to flexible
movements, in accordance with the changes in the market. Clinging to orthodox theories has never helped anyone, so take your
own decisions, while also understanding the true risk posed by the market.

Investing can be a tough task when you add your own behavioural biases to the misbehaviour of the markets. As authors Benoit
Mandelbrot and Richard L. Hudson, you never know when the market will move up, move down, or change direction. If that is
the case, then how will you invest? The simple answer could lie in Balanced Advantage Funds (BAFs). These funds belong to the
hybrid category of the mutual fund universe, i.e., they invest in both equity and debt instruments in order to gain from the
upside potential of equities and limit downside through exposure to debt. However, what makes BAF extra special is the ability
of such funds to protect you from share market turns. Basically, when equity markets start moving up, these funds increase their
exposure to equity markets and when markets start moving down, these funds reduce equity exposure and increase exposure
to debt instruments. This way, you don’t need to worry about the direction of the market or keep trying to forecast when the
market will change direction.

Markets sometimes follow their own path. At the same time, our own behavior can impact the path that we take. However, in
the midst of all this uncertainty, BAF can be a compelling investing choice for you.

31
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