Financial investments and emotions do not go along. Many wise men have already spoken about it, but I had to learn it my own way. I guess I am the one who does not believe in theories, so easily. Rather than reading the words of wisdom in books, I prefer to experiment. I am an emotional person by nature. But I didn’t know it would be so difficult to survive in the financial world with your emotions. Be it stocks, real-estate or anything else, investment principles are not altered. You must remain emotionally detached to expect returns.
I like to share the most emotional investment of my life and the lessons learnt. Hope it helps the people who are unlike me, the ones who believe in other’s theories:)
Falling in love
I fell in love with this place. It was an early monsoon in Pune and we decided to enjoy our Saturday in Lavasa — The first planned hill city of India. It was a two hour drive from my home in Pune. I had heard about this place but could not make it earlier. And this was the first time for me and my two other colleagues to explore this place.
We were soon driving on Temghar — Lavasa Road, with the lush green scenery on its sides. We found this road much better than the ones within Pune (at least in 2010). We started absorbing the beauty of countryside with the lakes, villages, open air and the cozy weather. And then came the steepest curve, almost 180 degrees of turn, where only the first gear helped (manual transmission). We knew the hill area started. Our car was almost crying when we reached the summit. We were almost standing at the top and could see the whole city underneath.
It was beautiful. The city was covered with the clouds, briefly showing its outline. It was almost 10 am in the morning but still the road ahead was full of mist. We had to drive down 8km further through the curves, in the midst of mist. We started getting the hint of infrastructure in this place. Roads were professionally built with all the signs, guarding rails, landscaping. The whole area was well guarded by security. We reached the city which had a bank, a school, a five start hotel, independent houses, commercial street. And all next to one of the biggest lakes I ever visited. This was beyond my imagination, in such a far distant place. I had never seen any such place in India. It was difficult to resist my temptation to fall in love with Lavasa.
By the time we started driving back, I had decided to get my weekend home in Lavasa. I was not the only one. My other colleagues shared the same thought. And by the time we were back home, our plan to initiate the formalities were clearly laid out. We contacted the company officials and requested for apartment quotations. We were impressed with our quick decision making skills and the fast execution. With in a week, we made the advance payment and received our allotment letters. I had just booked my lake facing apartment. I could not stop imagining myself, sipping the morning tea in front of the lake and getting lost into the beauty of nature.
Dream falling hard
I was living in the dream world. The construction was supposed to finish in two years. Four months had already past. One fine day, my newspaper reveals - Lavasa lands in trouble for flouting green laws. Orders were issued to stop the construction immediately. This wasn’t the first time somebody had raised the concerns with Lavasa construction. Environmentalists and Social activists were raising their voices since long.
This is normal. Thats what I thought. All the big projects face legal battles in some way or other, in India at least! Eventually capitalism wins. Lavasa corporations was a subsidiary of one of the leading firms — Hindustan Construction Companies. The project was well supported by the top politicians of state (Maharashtra). I considered the construction halt as temporary glitch, which the company will be able to deal.
It took more than a year to get the sanctions clear. Lavasa corporations did get the permission to start the construction but with some caveats. In the meantime company’s bookings were stopped. With no money inflow and only the outflow (maintenance costs, loan payments, employee salaries) the one year gap had created a big dent in company’s financial health.
It did not stop here. Real estate market was in boom when I booked the apartment but the saturation was visible now across the country. The demands deteriorated. And the uncertainty due to legal issues further degraded the brand value of hill city. This kept going for years. Though the company kept postponing the date of possession, I kept my dream alive.
I had made 70% of the payments by the time I got the news that company filed for its bankruptcy. I knew this is the full stop. I will never be able to see my dream home. Only thing I wanted to get was the money in return. Its been two years since I filed my claims, but I did not hear anything from the authorities. As per the experts if the liquidation happens, every investor would be taking a hefty haircut, almost 90%.
Hard lessons learnt
The wise men have said — Treat your failures as experiences. I am trying to do the same. Here are the lessons I learnt from the “investment of my life”.
Follow the signs
I liked Lavasa for its location, infrastructure and the beautiful landscaping. I thought, if I I like it, others will like it too. And the ever increasing demand will soar the prices high. I got blindfolded with my love to this place and ignored the facts. I did not look into…
- What are the environmentalists concerns? What are the social activists objecting to?
- What is the scale of opposition?Are there any legal lawsuits against the company? Are there any protests going on? Is the government already looking into any of these objections?
Its correct that many big projects face legal challenges but it does not mean to ignore the facts. We must watch out for any signs that indicate a shaky path ahead. These legal matters discussed above were already in advanced stage at the point when I booked. A bit of study could have saved my investments.
Stop your losses
Stock investments have the concept of stop-loss but its applicable to other investment areas as well. Before investing, you must decide at what point of time you will let the investment go. What is the limit you are comfortable to take chances?
I did not decide on this. I remain optimistic that some day my investment will see the light. I got multiple chances to exit. I should have booked the losses and moved on. Yes there were some penalties to break the agreement but still my losses would have been much smaller than what I expect now (90%).
Fix your targets
Yes I had fallen for Lavasa. I considered it as my dream home. At least in terms of location. I sensed it quite early that its not going to be easy. There were many times where I could have come out of this deal. When the construction stopped, or when the company postponed the possession dates (multiple times), or when a money was demanded even when the progress was least. I always comforted myself with the thought that eventually everything will fall in place.
Emotions has no place in the financial world. Either you make profit or loss. You must calculate your investments and returns over a specific period of time. You must decide the target price and period before you invest.
In my case I had not defined any period. Though I had no plans to sell the house but I definitely wanted to enjoy the returns in terms of rental or stay. As I had no fixed period in my mind, I could not take any decision on it.
Conclusion
Though the lessons I learnt are related to my financials but they are applicable to many areas of our lives. Be it financial, professional or personal. We must decide on the time-bound targets before we invest in an activity. We must follow the signs indicating upward or downward trend. If its upward book the profits or else stop your losses.
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