The year 2025 will likely be remembered as one of the most psychologically testing phases for investors, marked by sharp valuation excesses, uneven participation and a widening gap between headline indices and individual portfolios.

Reflecting on the period, Sandeep Tandon, CIO, Quant Mutual Fund in an interview to ET Now said, “See, important or key data point is that when you see this sort of extreme level of greed comes in in some of the stocks the valuation spiking, how well you are able to hold your emotions and not able to say no to these opportunities also, I think that will be an important observation because lot of people get sucked in in these cycles.” He added that history repeatedly shows the cost of chasing momentum at the wrong time. “And maybe in historical we have seen when you actually sucked in at the peak of the cycle and then the impact is much more meaningful, more psychological, less financial and that has its own impact on your own understanding of the market or the portfolio construction.”

Despite the Nifty touching record highs, the pain across many portfolios was hard to ignore, especially in mid and smallcaps. According to Tandon, one of the biggest lessons was that even seasoned professionals are not immune to market euphoria. “See, the important learning is that even if you really look at even best of the money managers, smart strategists, best of the investors who people respect, they also get carried away when we are seeing that promoters are selling, private equities are selling fully knowing that…, I always believe one thesis, promoters are the biggest insider, private equity are quasi promoter, they are the biggest insider.” He questioned the logic of buying when insiders are exiting. “When they sell, they do not see value at these particular prices then how come we as a money manager see value in some of these names.”

He pointed out that strong inflows often masked underlying risks. “So that is the important observation and we see best of the names getting carried away in these participation and we all talk about the supply is very large but look at the money flow which is mutual funds are getting.” According to him, participation was not forced. “Everybody says there are other opportunities also. It is not necessary you have to participate fully knowing that promoters are exiting, fully knowing the valuations are expensive, and we all tend to participate.”

Placing responsibility squarely on investors, Tandon said, “Obviously, one cannot blame to the bankers and the brokers or the promoter, it is the investor themselves to be blamed first because they are participating.” He added that blaming regulators or intermediaries misses the core issue. Demand, he said, ultimately drives supply.