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Mice, Blitzkrieg & Investing!

”Sweat saves Blood , Blood Saves lives , but Brain saves both “- Erwin Rommel

A raging war, geopolitical uncertainty, and a hawkish monetary policy stance around the world expectedly beats down the stock market and investors' hopes and dreams. One starts losing hope and wonders whether you did the right thing by investing? Or whether one’s hard-earned savings into the seemingly promising financial markets in India is timed right?

In a crisis, considering the lessons of history can help us figure out how to manage the challenging years ahead.

With this in mind, let's take a look at the World War II-era to see if we can draw investing lessons from a time when much of the world rose, quite literally, from the ashes.

The Battle of Stalingrad

The Battle of Stalingrad was the longest, bloodiest battle in history fought between Nazi Germany and its allies and the Soviet Union for control of Stalingrad in Southern Russia. The war resulted in nearly two million people getting killed or injured. It also marked a decisive turning point for the German troops, who began their long retreat after surrendering at Stalingrad.

During World War II, Germany had overrun much of Europe using a new tactic called the "Blitzkrieg" (lightning war). Blitzkrieg involved a violent surprise offensive by massed air forces and mechanized ground forces that would break the unsuspecting enemy’s defenses, forcing them to surrender.

What was important and necessary for the success of Blitzkrieg was close coordination between ground and air forces. But despite the Germans having a successful war plan and the most sophisticated equipment in the world, they were defeated in this critical battle.

Just as the German army was preparing to launch further war efforts, the unexpected began to happen. A portion of the tanks of the 22nd tank division of the 48th tank corps of the German army simply refused to start, while some others would shut off shortly after starting. You may wonder what went wrong?

Well, the answer may surprise you, but I assure you it's 100% true. The mighty Germans were defeated in the war because of - field mice.

As it turned out, these patriotic Soviet critters lived in the straw that the tank division was using for cover against frost when they sat idle in reserve in fields and trenches, waiting for the call of duty. During these weeks of inactivity behind the front lines, the field mice had nested inside the vehicles and gnawed at the insulation covering the electrical systems. The tiny mouse army chewed through much of the wiring. As a result, at the most critical moment when these tanks were needed on the battlefield, only 30 out of over 100 were operable.

While the problem was recognized and fixed, it was still too late and an uncoordinated Blitzkrieg led to the downfall of the Germans.

Any nation that anticipates conducting large-scale military operations can ensure combat efficiency only if effective tank maintenance is performed, adequate spare parts are made available to fully trained personnel. And yet, despite accounting for these - an absolutely unexpected situation caught the army by surprise.

Stanford professor Scott Sagan hit the nail on the head when he said, “Things that have never happened before happen all the time.”

And therein lies investing lesson 101 for all of us.

Save your investments from the mice - Diversify and SIP it

The clear message from history is that unexpected events like World War II, the financial crisis of 2008, or the Coronavirus Pandemic of 2019, are hard to anticipate. Catastrophic events can wreak havoc on even the most well-planned portfolio.

We are reminded during these times that putting all your eggs in one basket may result in astronomical risks for one's investments.

Diversifying across asset classes and having a long-term outlook can help investors remain steady when the storm arrives.

Uncertain times lead to capital flight to safe havens such as gold and government bonds. And while equities are your long-term bet on the Indian economy, having a hedge against uncertainty is key.

Further, diversifying your portfolio within equities is essential as it compounds systemic and stock-specific risk in your portfolio. What is Diversification and why do you need it? Check out the video below:

 

Granted, while these investing lessons from wartime are simple enough to understand, they are not always easy to skillfully implement. And that's where the power of simple, consistent investing in very simple investment instruments can make a difference. Maybe via long-term SIPs in mutual funds. Investing at a time when our portfolios may face the danger of getting decimated (even if only in the short term) is admittedly overwhelming. This is exactly the time you may want to trust an expert fund manager whose full time job is to invest, and invest wisely. And talking to an expert MF Distributor who can understand your needs & guide you well, could just be the antidote to the not-yet-felt-pain.

It’s important not to overgeneralize; each historical period reflects unique circumstances but despite the gloom, let me leave you with a ray of hope.

The post-World War II era saw a massive switch from a wartime economy to peacetime prosperity as resources flowed quickly to rebuild nations.

And history is known to repeat itself, isn't it?

Make sure you choose the right funds as per your risk appetite, and we will make sure your investments are not eaten away by mice!

To explore the funds that DSP has to offer, click here.

 

About the author

The Rational Ghost. This is one rational storyteller that provides interesting insights & stories about investing and tries to be completely unemotional about it. Lives in the shadows, doesn’t want anyone to know its real name.

Disclaimer

This note is for information purposes only. In this material DSP Investment Managers Pvt Ltd (the AMC) has used information that is publicly available and is believed to be from reliable sources. While utmost care has been exercised, the author or the AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers, before acting on any information herein should make their own investigation & seek appropriate professional advice. Any sector(s)/ stock(s)/ issuer(s) mentioned do not constitute any recommendation and the AMC may or may not have any future position in these. All opinions/ figures/ charts/ graphs are as on date of publishing (or as at mentioned date) and are subject to change without notice. Any logos used may be trademarks™ or registered® trademarks of their respective holders, our usage does not imply any affiliation with or endorsement by them.

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