Zerodha’s founder Nithin Kamath is often in the news giving tips on the investing attitude of people in the country, mistakes they might be making, and even other general topics in the investing circuit.
Kamath, whose platform is among India’s biggest stock brokers currently, in a recent podcast talked about some mistakes that stock market investors might be making.
He gave some simple guides that investors in the stock market should keep in mind and how despite the risks people should try out trading the market since it can teach a person a “very important life skill”.
What Did Nithin Kamath Say?
Appearing in the SparX podcast with Mukesh Bansal, founder of Myntra and Cult.fit, Nithin Kamath pointed out some of the areas in trading that people often ignore or don’t give as much attention as they should.
He said “The thing about trading is that people don’t stop and it is not…as a stock broker my incentive should be telling everyone to keep trading…but you know, I mean everyone should attempt to trade the market because I think it teaches a very important life skill. I think the most important thing about trading is to know when to stop.”
Explaining that full-time trading is a very time-consuming thing and it is not always easy to do it along with something else, Kamath talked about the biggest reasons why people might lose money in the stock market.
He revealed “In the last 25 years of being in this…if I blew up in 2001, it was essentially that. You took leverage, which is borrowed money and you wanted to go against the trend because people inherently like to go against the trend.
When something’s going up, you think ‘oh it won’t go up anymore’. If something’s going down you think ‘oh it is falling too much’. You want to do the opposite and in Zerodha we have tracked so many traders and these two are by far the biggest reasons you lose money in the markets.”
Kamath believes there are two types of people in the stock market, one are the investors who intend to just buy stocks and don’t want to sell them, and the second are traders, where even in that, there are two subcategories of one kind of trader those who go according to the market and other is the short-term traders and “their view on the market is constantly changing.”
These traders usually trade for around a week and are responsible for almost 70-80% of the trading volume. According to Kamath, the biggest mistakes people make that lead them to lose money while investing are:
- Going against the trend and
- Averaging down
Kamath also spoke about the lessons he was taught during his journey while investing and trading saying “These are lessons I also learnt after blowing up. It is very easy to say but when you blow up with borrowed money and you have interest payments, life teaches you a lesson. I have become far more conservative in terms of risks, it was a life lesson I could not forget.”
The Zerodha founder has actually spoken previously about falling into the trap of investing with borrowed money and advised strongly against it.
In a 2022 conversation with Moneycontrol, he said “I blew up when I was 21, and I think, blowing up and having to recover from what I had borrowed, taught me a bunch of life lessons. It took me a few years to pay back the money I had borrowed to invest in the stock market. Ever since, I have never ever borrowed. I have followed the same principles in my business. We could have grown exponentially on borrowed money, but we didn’t do that.”
In January of this year, Kamath had earlier also said something along the same lines that “The biggest reason active traders lose money is overtrading, the low brokerage doesn’t help.”
He also in a tweet wrote “The goal should be to limit the damage. With diet, it is to have fruits and sugar-free alternatives. With trading, it is bet-sizing. A simple bet- sizing strategy is to trade with as little quantity as possible most of the time. Increase it only when you have conviction and are trading well.”
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