'Prioritise lower volatility in long term': Zerodha CEO Nithin Kamath's advice for new-age tech cos

Calling the sharp drop in the stock prices of some of the listed new-age tech companies as "quite scary", broking firm Zerodha's founder and CEO Nithin Kamath on Saturday advised the companies to prioritise lower volatility in the long term as against maximum gains in the short term.

In a series of tweets, Kamath wrote about the valuation of these companies and the impact the drawdowns can have on the business as well as the teams.

He said history shows that only a small percentage of the companies will be able to bounce back from the fall in their stock prices.

As the networth of the core teams in these new-age businesses is tied to employee stock ownership plans (ESOPs), stock prices going down after hitting a peak will feel like a loss, he opined.

Talking about the impact of the sharp drop in valuations, he said if teams are distracted by the large changes in their networth, it cannot be good for team morale, focus and the business of the companies. 

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Kamath said the more a company tries to talk price up in the short term, the higher the odds of large drops and 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," he wrote.

Kamath advised the companies to 'talk down' the price rather than 'talking up', and said they should strive for lower volatility in stock price. He concluded with a tweet from Amitabh Bachchan's movie Sarkar, "Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye," which means that one should think about the long-term loss before thinking about short-term profit.

Kamath is known for sharing his views on Twitter. Saying that the ups and downs in a company's valuations can be mentally taxing, he had last month explained why Zerodha is conservative about its valuation.

Also Read: Nithin Kamath explains why Zerodha is conservative about its valuation