Portfolio Management Lessons That #ALSIceBucketChallenge Taught Us


Unless you are a hermit who keeps away from the social media bandwagon or have been living under a rock these past couple of months, it’s unlikely that you have missed the videos of countless people across the world dumping ice cold water over their heads in the name of #ALSIceBucketChallenge. Whether you are compassionate about this cause yourself, or are one of those who abhors the idea of wasting water in the name of charity, there are some fantastic financial lessons from this unique challenge, which you can apply to your financial portfolio for better gains.

The ALS Ice Bucket Challenge is perhaps the most successful Internet memes of our times, which has created awareness about Amyotrophic Lateral Sclerosis, a neurodegenerative disease that damages the ability of the brain to control muscle movement in the human body and ultimately leads to one’s death.

One cannot deny the fact that the #ALSIceBucketChallenge has been a great leveller, bringing the likes of ex-presidents, high-profile business owners, movie stars and commoners on the same page. Thanks to this Internet sensation, the ALS Association received a staggering amount of $100 million by way of donations and that may, in the days to come, result in groundbreaking research that can arrest the progress of this disease.
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If you are scoffing by now, thinking that this is a far-fetched possibility, and the #ALSIceBucketChallenge was more an exercise in vanity than charity, we still have a compelling reason for you to read on. You can actually take four valuable lessons from this unique challenge that will enhance your portfolio gains. So here goes:

Keep it simple
The main reason why the ice bucket challenge worked was that it was incredibly simple to understand. If you were nominated by a friend to take the ice bucket challenge, all you had to do was to take a bucket of ice water and dump it over your head on camera, pledge a small donation to the ALS organisation and post the video on Twitter or Facebook with the hashtag.

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Alternatively, if you declined the invitation, you had to make a donation of $100 to the organisation mandatorily. If you took the challenge, you could nominate three other people to follow suit. Likewise, when it comes to making investments, make a deliberate attempt to keep it simple. Don’t invest in products that are either too complex in structure or are incomprehensible to you. Apply the basic rules of diversification of simple products across asset classes to your portfolio and you are pretty much sorted.

Strike when the iron is hot
Even if you have not participated in the challenge yourself, you are likely to have seen numerous friends, acquaintances and celebrities participating in this challenge and grabbing eyeballs. Similarly, many times the macroeconomic conditions present opportunities in the market. While it is not always advisable to flow with the tide, as a prudent investor, you should not let such opportunities pass. When conditions are apt, you may either grab some low-hanging fruit or book profits in an investment, and deploy the funds elsewhere for better gains. If you are a silent spectator, you may just miss the bus.

Keep your eyes on the goal
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At the heart of the ice bucket challenge, however quirky it might have been, lay a very important issue – it was about creating awareness about a fatal disease and make contributions towards an organization that is dedicated towards its research. Likewise, whatever actions you take, you should never lose sight of the financial goals you have set for yourself. You may have to review your plan time and again, depending upon your circumstances in life or the change in economic conditions, but all your actions should be directed towards meeting the short, medium term and long term financial goals you have set for yourself.

Do not imitate blindly without judging the consequences
The ice bucket challenge faced severe criticism for having wasted tonnes of water where there are teeming millions in underprivileged countries, who do not have access to a bottle of clean drinking water in a day. To avoid such situations, people used bath water in their bathtubs or used water that could be reused in the garden to water their plants or like Matt Damon, who claims he is committed towards saving drinking water, went to the extent of using toilet water to perform this challenge!

While you do not have to go to such extents and are grossed out by the idea, the lesson to be learnt here is not to imitate the actions of others just to be a part of the bandwagon. As much as much you need to make the most of market opportunities as we pointed out earlier, you need not do just as others are doing. You may not need to make as big a profit booking that some of your friends may be doing and making small tweaks to your portfolio may just be good enough for you. At the end of the day, each person’s life goals are different so no ‘one size fits all’ approach is going to work.
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So, as you can see, the #ALSIceBucketChallenge while it was for a worthy cause and has provided some hope for ALS victims, it has also given us important lessons on how to handle our financial portfolio in the wake of an opportunity. So even if you have not participated in the challenge, by taking these lessons you will surely stand to gain in the long run.
About the author: Rajiv Raj is the director and co-founder of www.creditvidya.com