‘Be fearful…’: Zerodha’s Nithin Kamath drops bold advice for retail investors— ‘Follow Jerry Parker’s Turtle Rule’

The world of stock market trading is not only unpredictable but also risky. And in this cut-throat world, survival hinges less on making perfect market calls and more on the ability to manage risk, especially so when things go south. Nithin Kamath, co-founder and CEO of Zerodha, has built his career not just on understanding the market, but on recognising the brutal truths that come with it.

Taking to the social media site LinkedIn, Kamath today reflected on these hard-learned lessons, drawing from an old podcast with legendary trader Jerry Parker, to highlight why managing risk—not chasing profits—is what separates long-term winners from short-lived speculators.

Writing about his observations, Kamath spoke at length about those investors who have succeeded, like Warren Buffet.

"The one common element to their success and longevity is risk management. This has become all the more important in markets like these when fear takes over and having an objective mindset becomes harder," Kamath wrote.

For Kamath, Parker epitomized the image of a trader who kept his wits to himself. Although well-known in the world of investing, Parker was one of the original "Turtle Traders." The Turtle Traders were a group of novice traders trained in the early 1980s by legendary commodities traders Richard Dennis and William Eckhardt as part of an experiment to determine whether trading could be taught or if it was an innate skill. Dennis believed that anyone could be trained to trade successfully using a set of defined rules and strategies—like "training turtles" on a farm—hence the name "Turtle Traders."

Kamath, while talking about Parker, also underscored the importance of cutting losses swiftly and decisively.

He referenced Parker’s “Turtle Rule,” a strategy rooted in the teachings of Dennis, which advises reducing positions at double the rate of a portfolio’s losses.

“If you’re down 10%, you should reduce your positions by 20% and so on,” Kamath explained. “It’s a simple rule that ensures you live to trade another day.”

The principle is clear: the market will always present opportunities, but a blown-up portfolio leaves no room for a comeback.

Kamath’s insights come amidst a period of prolonged market uncertainty. Last month, he highlighted a significant slump in trading activity, with volumes across brokers falling over 30%. He warned that this could have broader implications, including a steep decline in the government’s securities transaction tax (STT) collections. Kamath estimated that if the trend continues, STT revenues for FY25/26 could fall below ₹40,000 crore—less than half the ₹80,000 crore originally projected.

But Kamath’s reflections on trading go deeper than market trends: they touch on the psychology of trading itself.

According to Kamath, Parker’s observations about human behaviour in the market reveal a fundamental paradox: traders tend to hold onto losses, hoping for a turnaround, while cutting their profits prematurely out of fear.

This emotional bias, Kamath noted, is the exact opposite of what successful trading requires.

“When you have a loss, you’re thinking, ‘I’m hopeful that it’s going to come back and turn into a winner,’ but that’s when you should be fearful that the loss is going to get bigger,” Kamath pointed out.

Conversely, traders should remain patient when sitting on a profitable trade, letting it grow to its full potential.

The real threat to a trader’s success, however, isn’t the market—it’s the trader themselves.

Over-trading and lack of discipline are the biggest pitfalls. Parker admitted that most of his trading anxiety stemmed from not sticking to his system. Kamath, in fact quoted Parker from his podcast: “I [Parker] asked Rich [Dennis] one day, ‘What are the two biggest mistakes traders make?’ He said, ‘Over-trading and not following your system.’”

Kamath echoed this sentiment, emphasising that successful trading is less about market timing and more about maintaining psychological and strategic discipline.

Kamath’s reflections could serve as a balm for retail investors, who have suffered the most, as Indian markets navigate through a tough phase currently. The Nifty index has endured a brutal five consecutive months of decline, its longest losing streak on record, and remains 17% below its all-time high of 26,277.35.

While the index showed a modest rebound of 0.5% recently, uncertainty still remains high, as foreign institutional investors exit in record numbers.

Kamath’s advice, in this turbulent time, is clear: navigating these choppy waters requires a steady hand, emotional resilience, and above all, strict risk management. It is time investors, especially retail investors, take his advice to heart.