News is not your portfolio's friend

As you know, a few days back, a Chinese company named DeepSeek released an AI model that caused panic in US tech circles. The Nvidia stock fell by about 16 per cent, which is a rather large amount for a 3+ trillion dollar stock to drop by. I don't know the situation when you read this column because market panics can lead to quick second thoughts, but not always.

However, when coupled with a shallow pool of understanding and information, news is a poor reason for quick-reaction trading.

What happened in the US markets last week offers an excellent lesson for investors everywhere, including here in 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 a forest fire. The narrative was compelling: a technological breakthrough that supposedly threatened the foundations of the current AI boom.

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But step back for a moment and consider how often we've 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 focused on their fundamental strengths have survived and thrived by adapting and evolving.

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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 painted in shades of grey. Most technological breakthroughs create new opportunities while changing existing ones rather than destroying everything that came before.

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 established businesses' ability to adapt and evolve in response to new challenges.

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What we're witnessing in the global tech sector today is not necessarily a revolutionary moment that will render existing technologies obsolete but rather 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: Does this news truly change the fundamental reasons why 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?

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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 market drama that will look rather 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.

Also read: That's a rule, not an exception