Every investor should understand a crucial point about market behaviour

Act, dont react- Instant investment moves based on news can be harmful for your portfolio Markets often react to news as if the world is black and white, as if every development must create absolute winners and losers. The reality, however, is in shades of grey. Most technological breakthroughs create new opportunities while changing the existing ones, rather than destroying everything that came before these

Dhirendra Kumar

CEO, Value Research

A few days ago, a Chinese company, DeepSeek, released an AI model that caused panic in the US tech circles. The Nvidia stock fell by about 16%, which is a rather large drop for a $3+ trillion stock. I don’t know how the situation will pan out by the time you read this column because market panic can lead to quick second thoughts, but not always. However, coupled with a shallow pool of understanding and information, news is a poor reason for quick-reaction trading.

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What happened in the US markets last week offers an excellent lesson for investors everywhere, including India. When the news broke about DeepSeek’s ability to create advanced AI models with less computational power than previously thought necessary, panic spread through global markets like forest fire. The narrative was compelling: a technological breakthrough that supposedly threatened the foundations of the current AI boom.

However, step back for a moment and consider how often we have seen this pattern play out in various sectors. Time and again, what seems like an industry-changing revelation in the morning news, usually turns out to be another development in the continuous evolution of technology and business. I’m reminded of the early days of e-commerce in India, when every new foreign investment or technological advancement in online retail would send traditional retail stocks into a tailspin. Today, while e-commerce has transformed retail, many traditional retailers, who had focused on their fundamental strengths, have survived and thrived by adapting and evolving.

This brings me to a crucial point about market behaviour that every investor should understand. Markets often react to news as if the world is black and white, as if every development must create absolute winners and losers. The reality, however, is in shades of grey. Most technological breakthroughs create new opportunities while changing the existing ones, rather than destroying everything that came before these.

The instant analysis that floods our phones and screens within minutes of any major announcement is particularly dangerous. These quick-takes rarely capture the full complexity of business realities. More importantly, they often ignore the ability of established businesses to adapt and evolve in response to new challenges.

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What we are witnessing in the global tech sector today is not necessarily a revolutionary moment that will render existing technologies obsolete, but another step in the continuous evolution of technology. For Indian investors, the lesson isn’t about which global tech stock to buy or sell, but how to approach news-driven market movements in our portfolios.

When you hear about a technological breakthrough that threatens a company or sector you’ve invested in, resist the urge to react immediately. Ask yourself if this piece of news truly changes the fundamental reasons for which you invested in the first place? Is the market’s panic based on real threats to business models, or is it simply reacting to uncertainty about the future?

The wisest course of action, as I’ve often suggested, is to focus on the fundamentals that drove your investment decisions in the first place. Has anything fundamentally changed if you believed in a company’s management, market position, and long-term potential? Or, are we simply witnessing another episode of the market drama that will look quite different with the benefit of hindsight?

Remember, in investing, as in life, the first reaction is rarely the best. Take a deep breath, turn off the news alerts, and give yourself time to think. The market will still be there tomorrow, and your portfolio will thank you for your patience.

The Author is CEO, VALUE RESEARCH
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances