Calling the sharp drop in the stock prices of some of the publicly traded tech companies “scary enough,” brokerage firm Zerodha founder and CEO Nithin Kamath on Saturday advised companies to prioritize lower volatility in the long run versus maximum gains in the short run.
In a series of tweets, Kamath wrote about the valuation of these companies and the impact that withdrawals can have on the business as well as the teams.
He said history shows that only a small percentage of companies will be able to rebound after their stock prices fall.
As the net worth of the core teams of these new era companies is tied to employee share ownership plans (ESOPs), the decline in stock prices after peaking will be considered a loss, he said. .
Speaking about the impact of the sharp drop in valuations, he said that if teams are distracted by big changes in their net worth, it can’t be good for team morale, focus and business for people. companies.
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Kamath said the more a company tries to push up its prices in the short term, the higher the chances of big drops and long-term volatility.
“While it may seem like this isn’t a problem in private companies, it is. If things change, withdrawals are usually large and sudden. The risks and impact on the company can therefore potentially be much greater than those of companies whose stock prices gradually decline. on trade, ”he wrote.
Kamath advised companies to “lower” the price rather than “talk up”, and said they should work to reduce stock price volatility. He concluded with a tweet from Amitabh Bachchan’s Sarkar movie, “Nazdiki fayda dekhne se pehle, door ka nuksaan sochna chahiye”, which means thinking about long term loss before thinking about short term profit. .
Kamath is known to share his opinions on Twitter. Claiming that the ups and downs in a company’s valuation can be mentally taxing, he explained last month why Zerodha is cautious about her valuation.
Also Read: Nithin Kamath Explains Why Zerodha Is Cautious About Its Valuation