What Chanakya Niti teaches us about investing

Chanakya Niti is a profound collection of the principles Chanakya followed as well as the ideology he practised throughout his life.

A native of South India, Acharya Chanakya was a Minister at the local court of the Nanda Dynasty. During his tenure, he played a key role of a strategist, an administrator, an economist, and a shrewd politician.

He did whatever he could do to strengthen the whole kingdom. But rarely he was found in agreement with the dynasty’s ruler, Dhana Nanda.

Legend has it that he was extremely unhappy with Dhana’s strategies when it came to protecting the Kingdom from enemies. At one point, when Greeks had almost invaded the western part of India, Chanakya advised him to re-think about his defense and security policies.

Instead, he abused him terribly and kicked him out of the court. Feeling cheated and insulted, Chanakya then loosened his ponytail and vowed never to tie it until he wiped off the Nanda Dynasty of the map.

After he left the kingdom, he went on a searching spree to find the probable candidate for an ideal King. And that’s when he met a 20-year old boy, Chandragupta Maurya. He accepted him as his student and taught him the lessons of politics and war. Economics and political science. Strong administration with a bureaucratic style.

Under his mentorship, Chandragupta Maurya destroyed the Nanda Dynasty and established the Maurya Dynasty. A dynasty which went on to become ancient India’s biggest dynasty. After crowning him as the Emperor of Maurya Kingdom, he penned down his book – Chanakya Niti. A profound collection of principles he followed. The ideology he practised throughout his life. And listed below are a few of the lessons that I personally believe will help us in becoming better investors.

“He who is prepared for the future and he who plans adequately are both happy; But the fatalistic man who wholly depends on luck is ruined”

This is one basic lesson that makes so much sense to me when it comes to financial planning. The moment we cry for the very first time in the World, we are designated with dozens of life-goals instantly. Child’s Education. Retirement Planning. Ringing the Wedding Bells. Fancy Car. Big House. And probably what not.

As we grow in age, the bucket-list keeps expanding like a hot air balloon. And thus arises the need for money too. Plenty of money to accomplish plenty of goals.

But the fascination of You Only Live Once (YOLO) lifestyle pushes the financial planning off the exit door. In a company of like-minded people, we keep believing only in enjoying the present. We somehow neglect the planning of these goals in advance. How much shall we need to shell out of our pocket? How deep the inflation is going to hurt the future value of money? Hardly we pay any heed to such questions.

Only at the later stage of our lives, we realize how hard it is to save a massive amount of money on a monthly basis. Year-by-year as we continue delaying it, thousands-by-thousands the monthly amount to be saved keeps rising the ladder. The unwanted consumption lifestyle that we get accustomed to, makes it hard for us to save, invest, and build the desired corpus in a less period of time. Too tough, right?

Instead, what if we start planning about our goals the day we receive our first paycheck? What if we plan to allocate 10-20% of our monthly income towards them? What if we start taking care of our future needs a bit early? This way we can enjoy our present while preparing for the future. As a brownie point, we may never have to borrow whenever our goals approach the horizon.

“A mere trickle of the tiny drops of water can fill the pitcher; The same way we must keep on collecting knowledge, Dharma, and money”

One can consider this as an extension of the first lesson. Although planning in advance really does help, at the same time, the monthly amount that requires to be invested becomes considerably low. Well, that’s the miracle of compounding. With decades of time spared, compounding really turns a disciplined investment into a mammoth capital. However small it may be.

Consider this: The moment we receive our first paycheck, we can either consume 100% or 80% of it. The choice is truly ours. But if we allow a portion of it to build our retirement corpus, it can work wonders. The monthly investment amount to build a corpus of Rs.5 Crore turns out to be just Rs.4600. This is when we start at the age of 20.

If we delay it by 5 years and start at 25, the monthly contributions increase to 8100 per month. Plan to delay it further? Be ready to shell out Rs.14500 even at a small age of 30. If we get accustomed to living paycheck-by-paycheck and somehow get enlightened towards building a retirement fund at 45, will we find it easy to spare Rs.92000 on monthly basis? I believe most of us would say – No.

Start early. Plan goals in advance. Prefer not to live paycheck-to-paycheck. An early stage foundation of investing a tiny amount will help us reach our goals in a smooth manner. As we grow in age, these tiny contributions compound. As my friends, Amit and FI say, “Slowly. Steadily. Surely.”

“Save your wealth against future calamity. Do not say, “What what fear has a rich man of calamity?”

When riches begin to forsake one even the accumulated stock dwindles away”

A wise piece of advice by Chanakya. It’s always better to build an emergency fund before we even start to invest. A reserve that can assist us in covering 8-12 months of monthly expenses. Better to cover 2 years of financial responsibilities.

But why? Can’t we just ride the bulls, invest whatsoever we have in our bank account and pull out whenever the emergency arrives? Right?

Well, no one can predict the sentiments of the market. We may beat the index but not the emotions of the participants involved. No one knows when the bear cartel might get active. And start attacking with 100-degree power. And what if, on top of that, someone loses a high paying job? The recent turbulence in the Jet Airways has turned over 20,000 professionals jobless. The ones without an emergency reserve will surely get impacted with their daily groceries; house rent, EMIs; etc.

The need of the hour is to maintain a fund that can be converted into quick cash instantly. Savings Account. FDs. Liquid Funds. Never deploy it in lieu of multi-bagger returns. Use it only during emergencies while discarding a lavish lifestyle. A vacation to the Maldives can wait. Armani suits can wait. Royal Enfield can wait. Choose only basic necessities. And replenish the fund as soon as there is an extra surplus. Let it be our helping hand when everything else just falls apart.

A few days ago, I had shared a letter on my twitter handle. Written by Warren Buffett’s grandfather to his children, it emphasizes the importance of building cash-reserve for emergencies. A reserve that makes us avoid a situation where we are forced to liquidate our core holdings. The holdings that we buy to keep for long-term capital appreciation. This letter is just a 2-minute read but worth the time. I suggest you go through it before we jump to our next investing lesson.

"For a number of years I have made it a point to keep a reserve. I have known people who have had to sacrifice some of their holdings in order to have money that was necessary at that time. Thus, I feel that everyone should have it," he wrote.

“Learning about various disciplines is like a cow of desire. It, like her, yields in all seasons; Like a mother, it feeds you on your journey. Therefore learning is a hidden treasure.”

He always advocated reading about various disciplines. And endorsed the idea of learning. This was another aspect that I really liked about Chanakya. He never restricted himself to just one discipline. In his book, Chanakya Niti, he has written on International Trade, Ethical Morals, Guidance on Living a Happy Life, Financial Well Being, Social Stability and Politics, Administration. And what not.

Covering almost every aspect of life that one can really think of, one can get a sense of how deep his desire towards learning was. Not only he has just written about it. In fact, through his learnings from various disciplines, he helped 20-years old boy in establishing the Mauryan Empire.

Likewise, investing is a game that is less about financials and more about knowing what’s there in store for us as investors in other areas. Read. Just read. The more we learn about other sectors (pharma, automobile, IT, etc.), the more we put ourselves in a better position to find lucrative opportunities. The more we learn about human behaviour, the more we make ourselves stay ahead in the game. Expand beyond what you already know.

In a recent interview with CNBC, 95-year old billionaire Charlie Munger said, "Without lifelong learning, you’re not going to do very well. You’re not going to get very far in life. Without Warren Buffett being a learning machine — a continuous learning machine, the record would have been absolutely impossible."

Warren Buffett (below) is the 3rd richest human being on Earth. Why? Because he has pocketed 20.9% annual return from 1965-2017. How? By reading 8-10 hours every day in his office at Omaha. By widening his circle of learning, he has invested in a diverse set of companies across numerous sectors. That’s an unparalleled track record. Continuous learning really helps.