When confronted with numerous blunders and rash decisions taken while managing or investing money, the most common refrain heard is ‘but I don’t have a degree in finance!’ While having a sound academic foundation in the field is undoubtedly an asset, the lack of it need not necessarily be a liability. The only thing needed is to is put in a bit of hard work and empower yourself. Add two bits of common sense and a healthy respect for numbers and you are all set to be your own money manager.
In fact, information gleaned from outside sources like movies for instance, can help you understand how the world of finance works in a better manner. Sometimes, it can be a warning that helps avoid mistakes waiting to happen.
In the monsoon of 1989, a group from my college went to watch a Jackie Chan movie at New Excelsior theatre. Being a commerce student, I was fascinated instead by the poster of another movie showing at Sterling Cinema diagonally across the road.
Opting to see it alone, I was fascinated to see how share prices were deliberately manipulated up and down by a handful of people using ordinary telephones (cell phones were still five years away from being launched in Mumbai).
Watching Wall Street at the age of 19 ensured that I stayed away from the stock market, which was rising at a fever pitch in those days. My friends who opted to see Jackie Chan, invested heavily and lost everything a year later when the Harshad Mehta scam was exposed.
The funny thing is, most of them scored better marks than me in financial accounting during the exams. One went on to do his MBA in Finance while another topped the college and became a chartered accountant. So the bottom line is that academic knowledge is no guarantee of being astute at money management.
At least I had a commerce degree. A friend of mine, Sudarshan Srinivasan happens to be a science graduate. He did ‘very well’ in his masters degree in business - the inverted commas because he had to repeat the finance and economics exams. Today, he has his own consultancy firm and advises people on a host of topics including (believe it or not) finance.
While he attributes the financial knowledge to a host of books (being a voracious reader ready to hunt bookshops for rare titles helped in the nineties when the internet was not such a handy source of information), the basics of finance, he feels, can be gained from observing entrepreneurs.
“Look at the fruit vendor in your area. He understands concepts like cash flow, stock-in-trade, low yield-high yield better than someone who has just studied finance text books. During winter he stocks more quantities of fruits that people suffering from a cold can still eat like apples while grapes would be less in proportion. When summer begins, he displays the choicest Alphonso mangoes sold at Rs 1200 per dozen but just two boxes. The rest of his stock comprises watermelons, musk melons... fruit that is seasonal and affordable to other buyer segments as well, not just the very rich,” Sudarshan points out.
Applying the same fundamentals to money management and personal finance can help individual investors realise their goals - without a finance degree. “The problem is that most of us relate personal finance to mathematics, a subject that is usually feared after class VI when confronted with topics like vulgar fractions. The idea of looking at your own balance sheet and discussing it with a charted accountant becomes a scary proposition and typically one signs without understanding aspects like your disposable income,” Sudarshan explains.
“If you make an effort to understand how a company functions and read financial statements, which are nothing but the language of the business, investing in equities becomes a much more informed decision. Like in T20 cricket, investors look for immediate results and quick profits. This forces companies to sometimes dress up their financials. You need to spot the trend: rising, falling, static. Ask intelligent questions where the puzzle does not fit, if a company is doing badly when that industry is doing well, or vice-versa. Ask the reasons for the good or bad performance,” he advises.