Aug 17: The market fall can in a way be good! Now do not get annoyed, for I know how you feel. Like many of you I too had become despondent initially. But there is hope for making money at the end of this despair. And how to do it is what I would like to discuss this week. Last week's market behaviour shocked many. But tell me do you have any choice about the way the market behaves? Sure, you do forecast and have your hopes. You base your forecast as best as you can. You look into technicals, industry reports, political developments etc. And then you arrive at your guestimate, based on what has happened immediately before and how the market has behaved. Despite all such checkouts, the sharpness of last week's fall has left me surprised. And so are many market players who talked to this writer.

Despondency descends when the market behaviour baffles not only you but many others like you in the bourses. For suddenly the threat stares you in your face. Instead of earning a return, you could end up losing your capital. But tell me does not such a despair have a healthy edge to it? It has, because now you are forced into a little more introspection.

You start examining your investment strategies and wonder about the correctness of your market prediction! In fact the introspection could go deeper. It slowly dawns on you that you are indeed caught between the devil and the deep sea. The 13 per cent return you can get on fixed income instruments are disgustingly low. Low compared to the alluring returns that you got from the primary markets prior to 1995. The primary issues were then an easy way for good returns for various reasons. No more. You then turn your sight to the stock markets. As the market rose from a Sensex level of around 2800 to a peak of 4600, you could have earned a handsome return of around 40 per cent! But it is not as easy as it sounds.

You have to be having your antennas fine tuned to monitor what goes on in the market. You need to get into the right scrips at the right time and also be smart to get out at the peak. Your battle is not just with the market. You have to fight your own psychology of greed and fear and try hard to be not only rational, but market smart; take courage to act on your judgements and face the consequences. Very few people I am afraid realise that unless you are tuned psychologically the right way, you cannot make money in stock market.

For stock market success is not just market analysis and forecasting. It has also to do deeply with analysing your own psychology. For example, you really need to examine yourself closely whether you have that killing instinct, which I think is a pre-requisite for being successful in making your fortune in stocks. And then again you need to look into your risk taking approach and ensure that you are just not falling a victim to a gambling instinct, which I believe lies hidden in each human being.

If you do not look into all these and get your act together right, you will end up losing your capital. Forget about earning any returns. And in this game you are pitted against FIIs, mutual funds, market manipulators, high networth investors and last but not the least the inside traders! All of them have more sustaining capacity, can afford to do much research and also take losses.

Driven sometimes to desperation, you may try speculation. But the game here is so hot that unless you devote yourself full time to it, your chances of winning are remote. Actually, your impulsive forays feed the gain for speculative sharks.

Unfortunately, the average investor is not made for the speculative game and I would strongly discourage speculation, if you have only limited time and limited money to spare.

But let us see if there is a way out. The market is currently falling. Between the peak of 4605 posted on August 6 and the low of 4320 posted on August 14, it has lost 6 per cent. Push the time span further behind. You find the market has lost 10 per cent of the gain it posted from the sensex level of 4124 posted on July 18.

So there have been gyrations. And these gyrations contain the seed for making your gain. But to do this and come out successfully you will need to be lucky as well as highly tuned to the market. The latter is unlikely to be the case with the majority of you, being busy with your own profession or service.

Forget these ups and downs. Is there an easier and surer way, you ask. Yes there are alternatives. Consider this now. The sensex hit the low on March 31 at 3360. And the peak of 4605 was touched a few monhts later. So theoretically there was a gain of 37.6 per cent to be made in over four months. Now let us eliminate the peaks and valleys. Take the 90 day's moving average of the sensex.

At the end of March this average was at 3355, which means the market was close to the 90 day's moving average. The 90 day's moving average, I consider is a fairly good guide to the current market gyrations. Currently, this average stands at 4001 on August 14. So if one had opted for a longer holding strategy of say five months, he would have earned a return of 22 per cent. His gain would have been much more if he had mastered the art of entering low and getting out high. I must explain. He gets in at the bottom and gets out high and therefore his gain would be much more than what is indicated by the 90 day moving average.

I must recall here what I had pointed out in an earlier article. Stock investing needs much discipline and tempering of one's hopes, greed, fear and impulses. Not an easy task by any means.

My argument for the 90 day's moving average is one of tempering the investment strategy and accepting returns which can be more sure, if only lower. So, what do we do now? The market is sliding at 4320. The 90 day's moving average is at 4001. At 4320 the market has shed 10 per cent of the gain from the 4124 level of July 18. So there is hope. You can keep a watch on how low the market slides and then pick your scrips. Of course, you also need to be on the look out to see that the market does not get into a major reversal of trend.

This I have dealt with in my daily column on technical analysis. If you follow the above strategy and buy as close or even lower than the 90 day's moving average, if such an opportunity arises, you improve your chances of winning the stock game. You however need to be investing for long as I have already pointed out.

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