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Lessons from trading on Yes Bank from Zerodha CEO Nithin Kamath: Here’s what retail investors should learn

Lessons from trading on Yes Bank from Zerodha CEO Nithin Kamath: Here’s what retail investors should learn

Lessons from trading on Yes Bank from Zerodha CEO Nithin Kamath: Here’s what retail investors should learn
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By Ajay Vaishnav  Aug 28, 2019 3:07:03 PM IST (Updated)

Yes Bank has fallen approximately 85 percent over the past year; Ashok Leyland by over 54 percent and Tata Motors by almost 57 percent. 

Nithin Kamath, the founder and chief executive officer of India’s largest stock broking firm, Zerodha, shared the travails of retail investors vis-à-vis Yes Bank, in particular, and to a relatively lesser extent, Ashok Leyland and Tata Motors. All three stocks have seen a sharp correction in the last one year.

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"Over 7 lakh people currently hold stocks in their Demat account with us and the recent meltdown in stock markets has affected portfolios across the board," Kamath said in his blog post
dated August 23.
However, where these three companies — Yes Bank, Ashok Leyland and Tata Motors — stand out is not just in value lost, but also in the number of people who have been affected, he added.
Yes Bank has fallen approximately 85 percent over the past year; Ashok Leyland by over 54 percent and Tata Motors by almost 57 percent. On Wednesday, shares of Yes Bank dropped 10 percent in trade.
In what Kamath described as “the crazy amount of wealth destruction”, the sheer number of people affected by these three stocks’ sharp correction over the last year is telling.
“Nearly 2 lakh of our clients hold Yes Bank with an unrealized loss of over 59 percent; 1.25 lakh hold Ashok Leyland with loss of 40 percent; over 1 lakh hold Tata motors with over 51 percent loss. Among the three, it’s just crazy the amount of wealth Yes Bank has destroyed,” he wrote.
Kamath shared another set of data that says a lot about the strategy most retail investors. He says that after every fall in Yes Bank share price, the number of retail investors holding the stock has grown only.
“Here is the Yes Bank chart for the last year with the number of our clients who held the stock on different dates — 27th Aug 2018: 23681, 21st Sep 2018: 58909 (after the first fall), 22nd Aug 2019: 196417 (post all the blood bath),” the CEO of Zerodha wrote in his blog post.
Based on his observations, Kamath said, “the optimal way to trade is to buy stocks that are doing well and sell them higher as they grow,” while also advising retail investors that “if a stock price is down and it seems like it is a cheap buy, odds are, it will continue to become cheaper.”
Kamath also questioned the classic stock market strategy of  “averaging down” as “one bad trade is enough to wipe out all previous earnings and more.”
“This is the single biggest mistake made by traders not just beginners, but also the experienced. 1.96 lakh of our clients who currently hold Yes Bank have bought the stock on an average at least 4 different times, mostly on the way down considering how the stock has behaved the last year,” he wrote in his post.
To prevent losses from “averaging down” in a stock, which is on a downtrend, Kamath suggested investors to be aware of stop-loss and “only invest money that you can afford to lose completely.”
Should a trader hold or buy Yes Bank?
Kamath said, “I have no idea I don’t think there are any out there who do as well. But if you are someone who has lost some money on this, think of the loss as a fee you’ve paid to learn the above lessons.”
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