'Greed drives markets higher...': Nithin Kamath warns of market euphoria echoing historic crashes

Zerodha co-founder Nithin Kamath has cautioned investors about the persistent dangers of market euphoria by comparing present circumstances to historical financial collapses. Through a reflection on social media, Kamath outlined how cycles of greed, excitement, and eventual downfall have remained constant, regardless of innovations in financial products or regulatory reforms.

Drawing on lessons from infamous events like the 1929 Wall Street crash and the 2008 global financial crisis, Kamath underscored that while the market’s surface features may change, the underlying behaviour of participants remains strikingly similar. This message comes amid volatility and speculation across global equities, echoing recent warnings by financial regulators about excessive risk in certain segments of the Indian markets.

Kamath stressed that, despite the evolution of financial instruments and asset classes, the emotional core driving market cycles has not shifted. He observed, “Every crash, 1907, 1929, 1987, 2001 (Dotcom), 2008 (GFC), and so many more, follows the same script,” highlighting the recurring pattern of exuberance leading to collapse.

According to Kamath, market participants across generations are drawn into speculative bubbles by the same fundamental driver: human greed. This, he argued, is a timeless force that continually shapes financial markets regardless of technological or regulatory progress.

He explained that each speculative boom begins with rising asset prices fuelled by increasing greed, creating bubbles that entice even those with little understanding of the risks. As enthusiasm mounts, leverage—whether through loans, margin trading, or complex derivatives—silently accumulates in the background. “It always finds a home,” Kamath noted, drawing attention to the pervasive nature of borrowed money in every market upswing.

The subsequent phase, Kamath warned, is marked by an inevitable collapse. “One day, the bubble pops,” he said, describing the predictable unwinding of excess. He further elaborated, “The leverage unwinds with unstoppable force, amplifying losses as cascading sell-offs feed on themselves. Markets crash, fortunes evaporate, and the cycle reaches its end.” This sequence, he suggested, is an enduring characteristic of all major financial downturns.

Kamath recommended the book 1929 as “a must-read for anyone in the markets — stocks, commodities, or crypto.” He included a quote by US President Herbert Hoover: “The only problem with capitalism is capitalists. They’re too damn greedy.” By referencing history and external commentary, Kamath positioned his warning within a broader tradition of market critique.

His reflections resonate at a time when speculative behaviour has emerged in various corners of the Indian and global markets, from small-cap stocks to cryptocurrency trades. Kamath’s message serves as a reminder that, despite the creation of innovative financial structures and tighter regulations, market participants remain vulnerable to the same pitfalls that have triggered collapses throughout history.

“In the aftermath, lessons are learned,” Kamath wrote, suggesting that regulatory authorities typically respond to crises by targeting the specific mechanisms of leverage that led to the latest crash. As he added, “Regulations target the specific form of leverage that caused the crisis. The mechanism gets fixed, reformed, and contained. But greed never disappears.”

That recurring greed, he added, “simply waits, then returns in a new form, finding fresh channels for leverage that no one is watching. And the cycle begins again. Different stories. Same ending.” Kamath’s insights underscore how the persistence of human emotions, particularly greed, sustains the boom-and-bust dynamic irrespective of advances in technology or policy.