A sharp drop in the stock market is usually seen as an opportunity to pick future winners. But not every fall is like March 2020, where the surge is immediate, Zerodha co-founder and chief executive Nitin Kamath said on Thursday.
As stocks are facing their worst month since the outbreak of the pandemic, the CEO of Zerodha has shared a Twitter thread related to queries regarding exit from fixed deposits (FDs), debt funds and buying dips.
Kamath tweeted, “Lots of messages are asking me whether one should exit FD, debt funds and buy dips.”
He said, ‘If the situation worsens this time, it may take a long time to recover. No one knows.”
In another tweet, the Zerodha co-founder said, “If stocks are down 30-40%+, then something fundamentally might have changed, even if there is no news about it. In the world we live in today, markets are super-efficient, if something seems too good to be true, it usually is.”
idea behind buying a stock
When investing, he said, the idea is to buy a stock that is strong and not one that is weak. “Suppose there are two stocks, both A and B. 100. Say A drops 50 and lives at B 100, the probability of B going up is very high. Seems counterintuitive, but that’s how the market works,” Kamat said.
“We sell winners and average short on losers – this is called disposition bias. This strategy can go horribly wrong. Ask the millions of investors who continued to buy Yes Bank along the way from 400 10 exiting all my profitable investments,” he further wrote on the microblogging site.
Kamath added, “While stories of people making money with concentrated bets in one or two stocks sound good, the chances of this happening are one in a million.”
He also said that the best way to invest for the long term is to diversify widely and have enough cash equivalents for emergencies.
Sensex down 581 points on Fed’s rise in global markets
Meanwhile, equity benchmark Sensex fell 581 points today in tandem with global sell-off after the US Federal Reserve signaled policy tightening since March.
Traders said depreciating rupee and continued foreign fund outflows weighed on the sentiment.
The 30-share BSE index ended 581.21 points or 1.00% lower at 57,276.94. Similarly, the broader NSE Nifty fell 167.80 points or 0.97% to 17,110.15.
HCL Tech was the top loser in the Sensex pack, falling 4.17%, followed by Tech Mahindra, Dr Reddy’s, Wipro, TCS, Titan and Infosys.
On the other hand, Axis Bank, SBI, Maruti, Kotak Bank, Sun Pharma and IndusInd Bank were among the gainers, rising up to 2.81 per cent.
The Federal Reserve left policy rates unchanged on Wednesday, but Chairman Jerome Powell said the US central bank could raise interest rates in March and end its massive bond buying program to tackle rising inflation.
Investors fear foreign capital outflow from emerging markets like India after the hike in rates in Amer.
Don’t miss a story! Stay connected and informed with Mint.
download
Our App Now!!
,