Investing lessons from Mallya
Even as Kingfisher Airlines proves to be Vijay Mallya’s undoing, there are several personal finance lessons to be learned from the missteps of this once high-profile liquor baron.
Don’t let emotions dictate
Mallya was heading a successful businesses group before he launched Kingfisher Airlines. He had no experience in the field and aviation is a difficult business. Yet, Mallya took the plunge. Lenders and shareholders of Kingfisher paid a heavy price for this vanity .
Investors should not get lured by seemingly attractive assets, especially real estate, new-fangled derivatives and other exotic financial products. Derivatives are meant to hedge portfolios, not to speculate. The futures segment entails very high risks. Ordinary investors should stick to investment options such as PPF, fixed deposits and mutual funds.Flights of fantasy, inevitably lead to a Kingfisher like crash.
Overconfidence ruins
Hubris played a key role in Mallya’s fall from grace. Just because he had done well in other businesses, Mallya was confident that Kingfisher Airlines would also succeed.
Small investors should not fall for the overconfidence bias if they make money from some of their stock picks. Overconfidence makes investors put money in stocks directly, instead of taking the services of a mutual fund manager for a small fee. If your investments have done well in the past, was it because of an informed choice or some `tip’, pure luck or sheer coincidence? Trusting an expert is always a better option.
Don’t live on debt
Even though Kingfisher Airlines was not doing well, Mallya continued to borrow heavily from banks to sustain the troubled airline. Banks too overlooked the burgeoning losses of Kingfisher and continued to lend. This overleveraging has been Mallya’s undoing. Kingfisher has accumulated losses of `4,301 crore and owes over `9,000 crore to banks.
Investors should avoid taking debt they can’t service. If EMIs and credit card bills exceed 50% of your net take home pay , you are headed for trouble.