What if you could read tomorrow’s news today? Would you be able to turn that information into profit in the stock market? An intriguing experiment shared by Nithin Kamath, founder and chief executive officer (CEO) of Zerodha, sheds light on a stark reality: even with access to tomorrow’s headlines from The Wall Street Journal, most traders still failed to make money.
In the experiment conducted by Elm Wealth, 118 finance students were handed the front page of the WSJ a full 24 hours before publication. Expectation? Easy profits. But the results were startling: half the participants lost money, and 16% saw their portfolios wiped out completely.
At first glance, it wasn’t because they predicted wrong. The students actually called market direction correctly 51.5% of the time—better than random chance. So what went wrong?
According to Nithin Kamath, most students went wrong with position sizing, which determines how much capital should be allocated to a particular trade.
Kamath explained that many students bet huge portions of their portfolio on a single trade and used massive leverage. So, when they were right, they made good gains on their bets, but one misstep cost them dearly.
“Many students bet huge portions of their portfolio on a single trade. Some used 20x, even 60x leverage. When they were right, they made money. But when they were wrong, they blew up. All it took was a single misstep,” Nithin Kamath said in a post on X on Monday.
Flip side
At the same time, this study was also put to the test on experienced traders, and the results were entirely different. With the same advanced knowledge, they delivered average returns of +130%. What gave them an edge? Superior risk management.
“They knew how much to risk. They bet small when uncertain, and big only when the odds were clearly in their favour. That’s the art of position sizing,” Kamath said.
Takeaway for retail investors
So, the experiment underscores a big takeaway for retail traders and investors: Risk management is more important than being right when it comes to trading.
“Here’s the core lesson: Even if you could predict the future, it wouldn’t save you from poor risk management. Trading isn’t just about being right. It’s about surviving long enough to stay in the game. Most retail traders obsess over predictions. But smart money obsesses over how much to bet when they think they’re right—and how to protect themselves when they’re wrong,” Nithin Kamath said.
Ultimately, he added that in the markets, being right means nothing if you go bust before you’re proven right.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
