Nikhil Kamath’s formula for earning stellar returns in the stock market: Hedge against big losses, let compounding work

Can a conservative stock market investment strategy generate better returns than the index over the long term? Well, that’s what Nikhil Kamath tries to do in his TrueBeacon fund, and that’s his advice to investors. Be careful, use hedging to protect your investments from large losses and let capitalization take care of investment growth, Nikhil Kamath, co-founder of TrueBeacon and co-founder of Zerodha, told FinancialExpress.com in a recent interview. Its TrueBeacon fund remains extremely conservative, hedging bets and protecting against declines by allocating only around half of the corpus to equity markets, with the rest made up of virtually risk-free debt instruments such as government bonds. .

Watch the full interview: Nikhil Kamath, co-founder, TrueBeacon, co-founder, Zerodha

Diversify, don’t allocate it all to equities

Instead of investing 100% of capital in stock markets, Zerodha’s co-founder’s advice to investors focuses on diversification. “People should diversify, a lot of people who have come into the stock markets seem to have too much allocation to one type of product.” He adds that as interest rates have risen, a body of investment should be split between debt, gold and equities, which can be an excellent hedge against inflation.

Moreover, short-term investments, especially in this market, will not prove beneficial, Nikhil Kamath said. “I think an investor does so much better when they don’t look at the market from a one- or two-year perspective, but rather from a 10-, 20-, or 30-year perspective. So don’t plan that way for a very short term future,” he added, urging young investors to think long term and invest for their future.

Read more: Nithin Kamath tells how retail investors can beat seasoned fund managers and earn more returns in the equity market

A tip for options traders

The main takeaway from Kamath for options traders who have entered the markets in recent years in the wake of the pandemic is to be “reasonable”. “If you go into the market trying to make 50% a year, the chances of you losing money are probably 80%. If you put your money in a bank, you get 6-7%. Try to build strategies that give you 12-15%. The power of capitalization is incredible; if you can earn small amounts of money on a regular basis, before you know it, compounding will take that portfolio somewhere else,” he adds.

Since Nikhil Kamath believes the markets are extremely overvalued, he urges investors to remain bearish and conservative. “I feel like there are too many headwinds and macro issues that don’t justify the multiple the markets are getting today, but the markets have a mind of their own and many might disagree. “, did he declare.