Lessons on financial planning from IPL Auctions

19 Mar, 2021

8 min read

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Financial Planning Lessons from IPL - Smart Money
Cricket and finance - sounds like polar opposites given the history of betting on each and every move that cricket fanatics in India track on their screens.

In fact, the possibility of batsmen hitting boundaries and bowlers blowing the bails have attracted big sums of money in the Indian black market - after all, gamblers perceive it as the ultimate call of randomness that can make or break their bets.

But IPL took betting and cricketing to the next level - with the eyes of over 136 crore people pinned on not just the cricketing action, but also the auctions preceding that. Do the team owners lose right from the moment they make a wrong move during the auctions? Data scientists would say yes, while true cricket fans might disagree - after all, if you knew the outcome of a match simply from the team’s composition, then what's the point of watching the match at all?

Whether Mumbai Indians took the last victory as a result of Mukesh Ambani’s business judgement informing his team’s composition or simply a good performance spell of the leading players, your portfolio will suffer makes and breaks depending on how you bet - and whether the big names in the portfolio will ultimately pay off or not. IPL auctions and the stock markets have more in common than you might think - that’s why, we urge you to read on, and check out these three lessons on financial planning that you can take from the 2021 IPL auctions.

  1. Market entities aren’t rational - don’t let that decide your actions in the market

We are more than certain that you understand that markets aren’t rational. But sometimes, we are often lost in all the noise that reaches us through media channels, and sometimes, from the micro-bubbles that boost the price of underperforming assets. Take the example of Glen Maxwell, who was sold for 14+ crores this season, and Chris Morris, who attracted a price of 16+ crores. Chris Morris scored a mere 34 runs in the last season, and bagged 11 wickets - and yet, for some reason, this year’s auction suggests that Rajasthan Royals consider Chris a cricketing immortal. Or at least, RR’s Manoj Badale and Lachlan Murdoch - and their bidding strategy makes it clear enough.

You will often see underperforming businesses trading at high prices in the stock market. Don’t let the top gainers’s list inform your buy actions, because picking the best from the markets means that your strategy must be better than that of more than half the people in the market. And more importantly, trade volatile assets with caution, since their prices might be in for a sharp correction in the coming sessions. Do you think that RR’s bet on Chris Morris will pay off, or are we expecting a correction in the coming season? Stay tuned to this IPL season to find out!

 
  1. Good opportunities often hide behind the glamour and media attention

How many times have we heard about the FANG rally on S&P 500? By that, we are referring to Facebook, Apple, Netflix and Google - and their steep climb in terms of profitability as long-term investments. Now, if someone asked you if you would invest in PVR Limited (an Indian entertainment company) or Google in 2009 for holding until 2020, which one would you choose? Let’s take a detour before we come to the reveal.

This year, Dawid Malan was sold to Punjab Kings and attracted a meagre price of just 1.5 crores in the IPL auction. At the same time, his ICC T20I average speaks for his quality- 50 plus in the format which rarely sees such numbers, but also is a powerhouse in the T20 format in general - with a strike rate of 149+.

Dawid is ranked at the top in ICC T20 International batsmen rankings. But does the IPL auction reflect the larger performance statistics of players’ profiles? Probably not. This is how asset prices and technical indicators are related - imagine that the ICC T20I rankings are technical indicators of an asset, and the auction price is the market price of the asset on the exchange - and don’t let this allegory slip by you as you catch the IPL auction this season.

  1. Don’t let the hype get to you

You know, over a course of one month, Bitcoin’s prices climbed from $35000 to $56000 - and that’s a massive 60%+ growth in a matter of just four weeks. Should you invest in Bitcoin after seeing this rally, or is it just another bubble waiting to be punctured as the focus shifts to real economies of scale once again? This is where we are counting on a lesson from this season’s auction.

Cheteshwar Pujara, who was basically *the* star performer in the 2018-19 Indo-Australia series was left dry for a long while before being picked by CSK at a base price of 50 lakhs.

When left unsold in the past, Cheteshwar resounded with a confident response - he pointed to the fact that Hashim Amla, who is an excellent cricketer also went unsold in one of the seasons, and that IPL auctions are problematic in general. When you are attracted to Bitcoin and other such risky investments, keep your cool like Cheteshawar, and don’t let the hype get to you.

So what do you think about these financial planning lessons from this season’s auctions, and do you think that the dizzying bets by RR and RCB will get them a spot in this season’s semi finals? Only time will tell this. But hey, don’t let these financial planning lessons take away from the fun and action of this season. If you want more lessons on the former, you can always visit www.angelbroking.com. Until then, we hope you get a drift of the cricketing action after a spree of WFH days and the lockdowns!

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