Olympics and Portfolio!

Photo by Kyle Dias on Unsplash

Next time when you are reviewing your current portfolio or evaluating a new addition to your portfolio, recently concluded Olympics 2021 can help you take the right decision.

You may be wondering how a sports event can help take a financial decision but there are few learnings from the Olympics 2021 which can be applied for portfolio construction. Even though, sporting events are a zero-sum game where-as investing is not but there are common principles which can help you to emerge as a winner.

Tokyo Olympics 2021 have ended in style with a promise to meet again in Paris in 2024. There were 340 Gold medals awarded in 339 events in 33 different sports encompassing a total of 50 disciplines. As expected, the first two spots on the medal tally have been taken up by USA and China. USA emerged at the top of the medal table with 39 Golds whereas China finished a close second with 38 Golds.

1. Both USA and China won around12% of the total gold medals and this was enough to get them the first two ranks on the medal tally.
2. To emerge victorious as a country, the focus is not to spread thin across all the sporting events but to focus on the sporting events where one is strong and dominate the space.
3. USA and China won 39 and 38 Gold respectively in Tokyo Olympics 2021 but over 70% of them were won in 5 sporting events.
4. USA participated in 35 sporting events but 27 out of 39 Gold came from only 5 sporting events (11 Gold in swimming, 7 in Athletics, 3 each in Wrestling, Shooting and Basketball).
5. China participated in 30 sporting events but 26 out of 38 Gold came from only 5 sporting events (7 Gold each in Weightlifting and Diving, 4 each in Shooting, Gymnastics and Table Tennis).
6. Winning Portfolios also display a similar trend as the winning countries which come out at the top on the medals tally.
7. To create a winning portfolio, one should not try to own the best schemes in each category and asset class. A winning portfolio should comprise of categories and schemes which are suited for your risk profile and helps you to move towards the financial goal.
8. Portfolio returns are also a function of few category / schemes which create the maximum impact on overall returns. If categories/schemes with large allocation do well, it will help the portfolio move towards the pre-determined goals.
9. It is important to build a sizeable allocation to such categories / schemes else it won’t be possible to contribute in a meaningful manner to portfolio returns.
10. It is not necessary to add new categories or schemes, as and when available, to a portfolio. It may or may not add significantly to overall returns and its marginal utility generally keeps on decreasing as we extend the buying list.

As we celebrate the best-ever performance of India in Olympics till date, let us apply the learnings from the top countries of Olympics 2021 to construct winner portfolios.

A winner portfolio is a portfolio which helps you fulfil your goal or purpose for which it was created.

Article by:

Amit Basu — Amit is CEO, Symphonia (a Sapient group company focused on B2B space of mutual fund distribution) and plays an important role in strategy, products, sales & marketing, and training for Sapient Group. He has over 22 years of work experience in the banking and financial services industry. His leisure involvements are poetry and chess.