4 Sep 2020, 11:26 — 4 min read
With Teacher’s Day around the corner, I started thinking about my learnings as a financial expert and entrepreneur. ‘Markets are the best teacher’ is my foremost learning in the last 16 years of working both as a professional and an entrepreneur. I take the opportunity to bifurcate between market learnings as an investor as well as an entrepreneur.
In periods of deep correction, this is one lesson which stands out whether it was the Lehman Brothers crisis in 2008-09 or the ongoing crisis due to the pandemic. The sentiment switch from fear to greed hardly takes a quarter. Now it is time to be careful.
Asset allocation helps to maintain peace of mind, especially in a situation where incomes are under contraction. An important principle is to plan for passive income as events like COVID are black swan events and not predictable. The earlier one plans, greater is the peace of mind. This also ensures lifestyle-related expenses need not be curtailed in testing times like these if the financial foundation is in place.
Risk management is essential whether you are an entrepreneur or a professional. It helps to keep one’s sanity in this era of turbulent change. This can be done through adequate mediclaims. There have been examples of people needing to shell out anywhere between 10-20 lakhs per person in situations where COVID has affected the entire family. Also, if you have a loan, then you need to have a term plan as that would ease up your family’s situation if things go on the wrong side.
If you have an operation running on a variable cost, then you are well organised. This is more important for sectors where changes in demand are likely to be on the higher side. A lean operation is an advantage in all business cycles, especially when pricing power is not in one’s control.
It is important to look at potential disruptions basis for the business model. A good litmus test is a possibility of regulatory as well as pricing related factors. Many business plans are projections of the best-case scenario and do not factor in the likelihood of a downside, especially in project finance reports. This reduces the odds for success over any period of time.
Personal risks include changes on account of health issues and personal issues which can spill over to the business side. Giving one sufficient time during the weekends or going to a retreat for reflections helps to reduce the impact of such issues on the business.
Time teaches us everything and to that ultimate teacher, our salutations.
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Posted byAnirudh Anand Gupta
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