Zerodha CEO Nithin Kamath, known for his educational comments related to stock markets and trading on social media platforms, on Saturday expressed fear regarding the sharp drops in stock prices of listed new-age technology companies around the globe. According to Kamath, only a small percentage of technology firms have been able to recover the losses.
The sharp drops in stock prices of listed new-age tech companies across the world is quite scary. If history is a guide, only a small % of them will maybe bounce back.
Companies when projecting growth should maybe prioritize lower volatility long term vs max short term gain 1/6— Nithin Kamath (@Nithin0dha) December 18, 2021
In a series of tweets, the Zerodha head advised the new-age tech firms to ‘prioritize lower volatility long term versus max short term gain,’ while making a growth forecast.
The networth of the core teams in most new-age businesses is tied to ESOPs & hence valuations.
Most, including the founders, suffer from anchoring bias. It doesn’t matter how large the notional profits on stock holding, if price hits a peak & goes down, it feels like a loss. 2/6— Nithin Kamath (@Nithin0dha) December 18, 2021
Teams being distracted by large changes in their networth, especially sharp drops, can't be good for team morale & focus, & by extension the business.
The more a company tries to talk price up in short term, the higher the odds of large drops & volatility in the long term. 3/6— Nithin Kamath (@Nithin0dha) December 18, 2021
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Nithin Kamath said that the networth of the core teams in most new-age businesses is tied to ESOPs, and added that “The more a company tries to talk price up in short term, the higher the odds of large drops & volatility in the long term”.
While it might seem like this isn't an issue in private companies, it is. If things change, drawdowns are usually large & sudden. So the risks & impact on the business can potentially be much larger than companies whose stock prices gradually decline on the exchanges. 4/6
— Nithin Kamath (@Nithin0dha) December 18, 2021
Citing a witty reference of Bollywood legend Amitabh Bachchan’s dialogue from the film Sarkar, ” Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye (One should think about long-term loss before cherishing short-term gain)”, Kamath said, “When companies are mostly valued based on what they project, counterintuitively, it may be a good idea to talk down than talking up the price. Lower volatility in stock price is also maybe something companies should strive for, which is good for long term investors as well”.
As @SrBachchan says in Sarkar, Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye. 😬 6/6
— Nithin Kamath (@Nithin0dha) December 18, 2021
