Is this the right investment?

Once again, I came across this question from an investor, “I have invested in such and such avenue. Is it the right decision?

On probing further, one gets the answers, which have by now become highly predictable for me.

In almost all cases, the investment avenue has a lock-in provision, which means the investor cannot get out of the investment even if one realizes that it is not a right instrument. Why, then, this question keeps surfacing after one has locked-in the money? Is it ok to assume that one did not ask this question before signing the cheque?

Doesn’t it make sense to ask questions BEFORE signing the cheque?

We learn from the story of Abhimanyu that it was easy to get into the chakravyuh, but without knowledge, it was difficult (sometimes impossible) to get out of it. Same applies to an investment with lock-in. Buying is easy, getting out is not.

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Knowledge and expertise are not fungible

“All of them were clearly intelligent and knowledgeable about a great many things – as long as those things had nothing to do with their money.


Most of them simply didn’t understand the principles of investing.”

Liz Davidson, Founder and CEO of Financial Finesse writes in the book “What Your Financial Advisor Isn’t Telling You – The 10 essential truths you need to know about your money”

Financial Finesse is a sort of a helpline in the US for people to get guidance on their personal finance matters. The above lines talk about the behaviour and attitude of generally intelligent and successful people. These are educated and intelligent people, successful in their respective fields of work. However, that expertise and knowledge are not fungible. Expertise in one area may not mean expertise with money.

In the absence of proper knowledge one is unable to understand or see the risks properly. Half knowledge can sometimes be dangerous. As we know from the Mahabharata, it was half knowledge that actually killed Abhimanyu.

As with Abhimanyu, who could not get out of the seventh chakra of the chakravyuh due to insufficient knowledge, many investors have painfully found that it is easy to get in an investment, but it is most difficult to get out of it, if one does not know enough.

Be careful with your investment. If required, take professional help.

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Ignorance, illiquidity and leverage

When you combine ignorance, illiquidity and leverage (or borrowed money), it can create havoc.

Very often, the ignorance is about liquidity and sometimes about leverage. Ignorance may lead to making rash decisions.

Remember the story of Abhimanyu in chakravyuh? (You can read the story here Abhimanyu in Chakravyuh)

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Abhimanyu in Chakravyuh

In the battle of Kurukshetra in the epic Mahabharata, the young Abhimanyu dies while trying to fight the Kauravas in a master strategy called “Chakravyuh”.

There is a very powerful lesson in this story for investors. Abhimanyu got into something that he did not know how to get out of and paid a very heavy price. Very often, investors enter into an investment without really knowing how to get out of the same. The ability to liquidate the investment with ease is one thing that any investor should look for in any investment that carries any amount of risk.

In the words of Warren Buffett: “Invest within your circle of competence.”

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