I generally do not follow cricket, but this article “Why Virat Kohli stands alone at 8,000 ODI runs” in Livemint caught my eyes.
In the article, performance of Virat Kohli, AB de Villiers and Sachin Tendulkar is analyzed by the author.
Without getting into much details here are the three graphs provided in the article. Author is trying to show the spectacular performance of Virat. Basically, he is a good player with strong fundamentals, right?
Let us try to answer few questions.
Typically in hindsight Virat looks fabulous. However, how many recognized his talent at the beginning of his career?
Will he be able to perform with similar consistency in future?
How many more years he will be able to play?
What if he gets involved in some controversies and need to quit his passion?
There are so many uncertainties in future which are practically impossible to predict even after doing very rigorous analysis of his fundamentals behavior, techniques, current momentum etc.
Now let us assume these three are the stocks in an equity market and is available for investment along with all other stocks i.e. all other players who plays cricket.
Even if you know for sure that a particular stock or an actively managed fund is fundamentally and technically strong it is difficult to predict the future of that stock or a company.
Even if you are able to identify future Virat or Sachin, but will they be able to consistently deliver similar returns in future?
What if current company which is good at governance get into some regulatory trouble?
What if products or services of a company completely goes out of market?
To avoid such risks, generally you diversify the equity portfolio. But what if you some unpredictable things happens in a stock in which you are heavily invested due to your conviction.
As it is said by Jack Bogle – “Do not try to find the needle in haystack. Buy the haystack” similarly it is prudent to invest in entire cricket fraternity i.e. THE INDEX instead of trying to find next Virat or Sachin.