Are You Measuring Stock Market Risk the Right Way or Just Chasing Returns?
Why Big Drawdowns Keep Hurting Even in a Bull Market
Market headlines may still talk about new highs, but many portfolios quietly bleed. A long list of once-popular names has dropped 50–70% from their peaks — Equipment, Rolex Rings, Route Mobile, RS Software, Sterling and Wilson, Tejas Networks, Themis Medicare, Utkarsh Small Finance Bank, Vedant Fashions, Vishnu Prakash R Punglia, Waaree Technologies and many more. The message is blunt: without stock selection discipline, stop-loss rules and quarterly monitoring, even a “good market” can be a bad journey for your money.
The same pattern repeats across cycles. When prices run up too fast, investors confuse luck with skill and assume past returns will continue. But once sentiment turns or liquidity thins, weak hands, crowded themes and leveraged positions unwind together — and the pain shows up as deep drawdowns and forced exits at the worst possible time.
When Market Darlings Fall: Sample Drawdowns and Lessons
| Stock Example | Peak-to-Trough Fall | Key Takeaway |
|---|---|---|
| High-beta midcaps (Equipment, Route Mobile etc.) | 50–75% | Momentum without risk control can destroy years of compounding. |
| Recently listed favourites (Vishnu Prakash R Punglia, Waaree Technologies etc.) | 60–70% | Listing euphoria is not a margin of safety; valuations still matter. |
| Well-known large and midcaps at fresh lows | New 52-week lows | Blind “buy and hold” without periodic review can lock capital in losing ideas. |
Several widely held names have even slipped below their earlier 52-week lows — Apollo Pipes, Cohance Lifesciences, Delta Corp, EMS, Finolex Cables, Godrej Agrovet, Hikal, H.G. Infra, Jindal Saw, Maharashtra Seamless, NIIT, Orient Cement, Polyplex Corporation, Prakash Pipes, Reliance Infrastructure, Rolex Rings, Salzer Electronics, Tejas Networks and others. When a stock rises too fast in a short span, it attracts traders, leveraged bets and storytelling — not patient capital. Entering late in such moves is like boarding a bus exactly when most smart passengers are getting down.
Long-term investing is absolutely rewarded in India — but only when it is combined with periodic reassessment of fundamentals, risk and valuation. A “buy and forget” approach may sound heroic, yet in practice it often means ignoring new information and clinging to losing positions because selling feels emotionally expensive.
If you want to combine directional views with disciplined risk, you can also learn to track index behaviour through well-defined setups instead of gut-feel alone. One convenient way is to study structured index calls such as: 👉 Nifty Tip | BankNifty Tip and compare them with your own reading of support, resistance and volatility.
Valuation vs Reality: Why Loss-Making Unicorns Still Command Billions
At the other end of the spectrum, India’s loss-making unicorns continue to boast massive valuations: BYJU’S, Swiggy, Ola Electric, Zepto, Delhivery, CRED, Meesho, Paytm, Udaan, Ather Energy, Spinny, Vedantu and others. Many of these companies burn hundreds or thousands of crores annually, yet are still valued in billions of dollars. Founders, meanwhile, can earn in crores through compensation, bonuses, stock options and secondary share sales — even while the business bleeds cash.
Startups often argue that today’s losses are the price of tomorrow’s dominance — funding rapid user acquisition, geographic expansion, technology and brand. Sometimes, that long game works. But for public-market investors, it is critical to distinguish between a venture-style high-risk bet and a fundamentally compounding business. Valuation is no longer just a number; it has become a narrative — and narratives can be extremely expensive when the cycle turns.
This is why relying only on top-line growth or headline valuation can be dangerous. A company can grow revenues rapidly while destroying shareholder value if it cannot earn a reasonable return on capital or turn operating leverage into sustainable profits. If the business model needs endless capital to stay relevant, the ultimate winners are often early founders and a few early investors, not the last wave of public shareholders.
Sharpe, Treynor and Sortino: Are Your Returns Truly Worth the Risk?
Returns alone never tell the full story. How calmly you earned those returns matters just as much as the final percentage. That is where risk-adjusted metrics like Sharpe, Treynor and Sortino Ratios become powerful tools in the hands of serious investors.
- Sharpe Ratio helps you judge how peacefully you earned your returns. A higher Sharpe Ratio means steadier performance with fewer swings — the fund gave you better returns per unit of overall volatility.
- Treynor Ratio focuses on market risk (beta). Among funds with similar returns, the one that stayed calmer relative to market movements will show a higher Treynor Ratio, indicating more efficient use of equity risk.
- Sortino Ratio looks only at downside volatility. It rewards strategies that protect capital during bad phases while still generating respectable returns, which is what most real-world investors care about.
Used together, these ratios force a better question: not “How much did I make?” but “Was this return really worth the emotional and financial risk I took to get there?”
Once you start viewing performance through this lens, many “hot” portfolios do not look that attractive. A calmer, slightly lower-return strategy with a superior Sharpe or Sortino can be far more suitable for building long-term, family-level wealth than a roller-coaster approach that leaves you exhausted and prone to mistakes.
Behavioural Edge: Conviction, Biases and Portfolio Discipline
Confirmation bias quietly pushes investors to seek only information that agrees with their existing views. Once we fall in love with a stock, we read every bullish note and ignore every warning. Over time, this leads to overconfidence, concentration in a few fashionable themes and poor sell decisions.
Smart investors build wealth through conviction, not collection. Two genuinely well-understood, high-quality stocks can create more long-term wealth than twenty names bought on tips and headlines. Generational wealth typically comes from focused, high-conviction positions accumulated at sensible prices and held through cycles — not from constantly chasing whatever is green on your screen today.
The goal is not to avoid all risk but to take chosen risks where the upside meaningfully outweighs the downside, and where you have the temperament to sit through volatility without abandoning your process.
That is where a clear, rules-based portfolio management and rebalancing framework becomes invaluable. Instead of reacting emotionally to every move, you pre-define how you will respond to gains, drawdowns and changing opportunities — and then you execute that plan consistently.
10 Practical Portfolio Management Rules for Real-World Investors
- 1. Accept red stocks. Do not expect every position to be in profit at all times; short-term fluctuations are normal.
- 2. Judge the portfolio, not a single stock. Focus on overall risk–return, not just one painful position.
- 3. Watch for imbalance. If overall portfolio is positive but more than half your stocks are in red, it may be time to rebalance.
- 4. Rebalance at a fixed rhythm. Active investors can rebalance fortnightly; long-term investors may prefer a monthly schedule.
- 5. Do a deep review every 45 days. Go through each holding with fresh eyes: has something structurally changed?
- 6. Harvest and redeploy. Use rebalancing to lock profits from outperformers and redeploy into undervalued, high-conviction opportunities.
- 7. Diversify smartly, not blindly. Ensure sector and asset diversification so that one shock does not sink the entire ship.
- 8. Stay informed. Track key global and domestic trends; markets can reprice assets quickly when new data arrives.
- 9. Keep dry powder. Maintain 5–10% in cash or liquid funds to take advantage of sharp, temporary corrections.
- 10. Update your own risk profile. Your goals, income and responsibilities change; your risk appetite and asset mix should evolve too.
If you internalise these ten rules, periods of volatility become opportunities rather than threats. Drawdowns in individual stocks will still occur, but their impact on your overall financial journey will be controlled, deliberate and aligned with your long-term goals instead of being dictated by short-term noise.
Investor Takeaway
Indian-Share-Tips.com Nifty expert Gulshan Khera, CFP®, emphasises that real wealth creation is not about finding a magic list of stocks but about respecting risk at every step — from entry price and position sizing to review frequency and exit discipline. A few deep drawdowns can permanently set back your compounding, while a thoughtful, risk-aware framework can help you stay invested through cycles with confidence. For more such structured, risk-focused insights on Indian markets, explore the ideas shared at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Risk, Drawdowns and Portfolio Discipline
- How should investors react when a stock falls 50% from its peak?
- What is the right way to use Sharpe and Sortino Ratios in mutual fund selection?
- Why do loss-making startups still command high valuations before listing?
- How often should a long-term investor rebalance a concentrated equity portfolio?
- What is the difference between conviction-based investing and blind buy-and-hold?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
