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Many a times, when I look up at the stars on a clear night, I can’t help wondering if there is intelligent life out there. Or are they just like us?

Forgive me if I sound condescending, but the current situation does amuse me a little.

Till January 8, everything was fine. The stock market was our darling. We couldn’t have enough of shares, mutual funds, systematic investment plans, initial public offers and new fund offers.

We knew there was that extra bit of risk, with the Sensex having climbed to 20,873. But we weren’t worried. After all, equity was known to outperform all other asset classes over time. And we were long-term investors.

But, cut to just 14 days later. January 22, 2008: Sensex at 16,729.

It’s as if all hell had broken loose. The phone won’t stop ringing, and each time it’s answered, the voice on the other side shouts the same word: SELL.

Come to think of it. Every investor had nodded vigorously when asked before investing if he was in the market for the long-term. Everybody said he was willing to hold the investment over the next five years to get the best out of equity.

So, 14 days was all it took to break the resolve of long-term investors? A 19% fall was all that was required to completely wipe out the tribe of long-term investors?

Almost overnight, we have gone from being a people full of conviction to a flock overcome with self-doubt. Is the market doomed? Is America into a recession? Will this correction be more severe? God! What do we do now?

This article seeks to address the last question: What do we do now?

For starters, I suggest we look in the rear-view mirror. An average equity fund has returned 53.5% p.a over the last five years. Note that this is the average.

Some funds have yielded much more. In terms of numbers, Rs10,000 invested five years ago would have grown to Rs85,000 today. Take away 19% and there is still over Rs60,000 — roughly 600% appreciation — left on the table.

So where is the carnage, bloodbath, mayhem, or whatever other metaphor the media has showered us with?

The situation reminds me of a story. Emperor Akbar once demanded from his chief minister that he come up with something to change his mood instantaneously. If the emperor was sad, he should be made to feel happy and if he was happy, he should be made to feel sombre again. And he had to do this in a week’s time or be ready for severe punishment.

With this impossible task on hand, the chief minister approached Birbal, who was known for his acumen and wisdom. Birbal smiled and told him not to lose heart — after all, they had a week to think up something.

A week passed and D-day arrived, but still there was no remedy in sight. When the summons came, the mortified minister approached in dread, for the emperor’s wrath was well-known.

On the way, Birbal appeared and slipped a piece of paper into the minister’s hand, asking him to present it to the emperor. Totally clueless, the minister did as told. And what did he see? The emperor’s face lit up on reading the chit of paper, and he was congratulated.

Here’s what Birbal had scribbled on the paper: “This too shall pass.”

Those wise words are apt in today’s market scenario. Think about it. The market was on a steady upturn. The great India growth story, strong corporate earnings, and a fundamentally strong economy kept the FIIs begging for more. Yet, in less than a month, the market takes a downturn and all these factors are forgotten.

The FIIs have suddenly had enough, corporate earnings have started falling, America is in a recession and the whole world is set for doom.

It is human tendency to scout for reasons to explain every phenomenon. I feel people just aren’t getting a fix on the course of the market.

Actually, making money in the market is simple — buy low, sell high. However, straightforward as this sounds, I know from experience that it is one of the most difficult things to do for the simple reason that it goes against basic human instinct.

When the good times are rolling and the indices are steadily creeping upward, the first impulse is to try and join the party. So you go and shop around for shares. And the first part of the rule is flouted.

Eventually, the inevitable happens — the bull run ends, valuations cool down, panic sets in and shares are sold in a hurry. There goes the second part, too.

This way, investors end up doing just the opposite — buying high and selling low. And history keeps repeating itself till one makes a conscious effort to come out of the cycle. That requires courage, gumption and, more importantly, the conviction to buy low and sell high.

Know this much — five years down the road, only those smart investors who are buying in the market now will be smiling. Don’t take my word for it — take history’s.

sandeep.shanbhag@gmail.com