Assumption: There exists a disconnect between the markets and reality with regard to valuation and methods to determine

the same. Also assume that we are all rational investors. The simplest maxim for a retail individual is buy low, sell high. Investment theory, macro-micro economic policy everything else is just so much noise. Now reflect how many times you actually followed this maxim. As with everything else in life, practical application is the greatest challenge. It is very difficult to follow the maxim when the neighbours are all either panicking or in euphoria. Going with the herd is as strong an instinct as life-preservation, but a great deal more subtle. Look at the present situation, the domestic market we see today is on the last legs of the mispricing of risk phenomena, that has been the life of the party for more than a decade. Institutions mispriced the risk of perverse incentives, macro-economic policy wonks mispriced the importance of achieving a stable inflation rate, loan officers mispriced the cost of giving loans to high credit risk clients, bankers mispriced the cost of packaging and leveraging risky products and rating agencies mispriced the cost of closing their eyes to everything. Now lets agree that we all got sucked in by the aggressive expansion of the last decade. Truth be told we are still reluctant to give up this story. The present situation is pretty muddled and for a retail individual extremely confusing. Especially so as the present market rally has come on the heels of a sobering shock. Look around, the BSE and NSE are hovering within sniffing distance of their pre-2008 highs along with high growth for gold, silver, oil. Throw in a few scares like the rare earth shortage, fear of sovereign default contagion spreading through EU, political instability throughout the middleeast, food price inflationary shocks, natural disasters and we have got the recipe for the perfect storm. The market is currently living out its half-life moment. The prime market of the world, United State of America is presently involved in papering over its shot up economic engine by monetising its GDP. The ill-effects have been out-sourced to the world, such is the price we pay for the reserve currency. Credit expansion with low policy rates and sustained high liquidity has been the default policy and the same is being rolled out on a world wide scale in an attempt to ride out this storm. For the politicians and policy makers such short term strategies make sense especially in a democratic set-up where the costs will be borne by the next government. The present uncertainty is not just a regular event but a limitation of the model. It is imperative that the economic model of sustained high growth, low interest rates, high and continuous liquidity with large resource utilisation be discarded. In the meanwhile, the retail investor will continue to be taken for a ride on the wildest roller coaster in the world.