A few years back, I came across this old video of Rahul Dravid giving a speech at the 2013 BITS Pilani convocation. He delves into the philosophy of winning the game called life, it’s nothing short of motivational. You might just find yourself watching that speech more than once!
You can check out the video here.
In this, Dravid talks about the Chinese Bamboo Tree which I found very interesting and wanted to share with all of you.
He said,
“You can take a Chinese bamboo seed and plant it in the ground, water and nurture the seed for an entire year and not even see a single sprout. In fact you will not see a sprout for 5 years. But suddenly a tiny shoot will spring from the ground. Over the next 6 weeks, the plant can grow as tall as 90 feet. It can grow as fast as 39 inches every 24 hours. You can literally watch the plant grow. What was the plant doing in those 5 years, seemingly dormant period? It was growing its roots. For 5 full years, it was preparing itself for rapid and massive growth. Without this root structure, the plant simply could not support itself for its future growth. Some would say the plant grew 90 feet in 6 weeks, I would say it grew 90 feet in 5 years and 6 weeks.”
Right off the bat (pun intended), these lines are simply a fantastic mantra to live by. But let me tell you that the lesson about the Chinese Bamboo Tree is pertinent to investing too.
If you were to ask someone what the most important factor in investing is, there’s a high chance they would say ‘returns.’ They’re not entirely wrong, but they’re not fully right either. When one only focuses on ‘returns’, the focus is only on the ‘outcome’. Decision-making is then skewed towards achieving quick results.
For example: During the cryptocurrency craze, numerous people put their savings into digital coins solely because it was possible to make extremely high returns in a short period. However, the crypto mania soon died down and many ended up losing a fortune.
This is one extreme example of what can happen when one puts returns over everything else.
As an investor, the main idea should be to make the foundation of your portfolio, i.e the roots, extremely strong. And one sure shot way to achieving this is ASSET ALLOCATION. Asset allocation basically means how you divide your portfolio into different asset classes.
A portfolio that has investments across different asset classes like Equity, Debt, Gold and Real estate can weather the bad times with less grief as compared to a very concentrated portfolio. Say for e.g. If you had a very concentrated Equity portfolio during the Covid-19 Crisis, you might likely have panicked while seeing your portfolio down ~20-25%. This may have potentially weakened your willingness to invest more in Equity. But if you had a portfolio that was diversified across different asset classes, then you would have been able to see out this storm without much grief.
Like everything else in Personal Finance, the asset allocation for every individual would be different based on factors like age, income, wealth, liabilities, and risk appetite.
When you add the ‘discipline of investing regularly’ to your desired asset allocation, you will be able to see the magic unleashed by Compounding – the 8th Wonder of the world.
This is the lesson that the Chinese Bamboo Tree leaves us with. Focus on the roots, the foundation, and the outcome will automatically follow sooner or later.
Till the next time,.
Vijay
CEO – InCred Money
P.S. I share my thoughts on Investing and the Economy regularly. You can follow me here.
