Two groups of speculators have been worst hit. Those who tried to ride the software bandwagon and those who tethered their stars to stocks manipulated by large market operators. Software stocks such as Pentafour Software and Leading Edge appreciated upto 10 times over a short period of around five months. Similarly, BPL shot up from 100 to 400, Sterlite Industries from Rs 152 to Rs 359 and Videocon International from Rs 25 to Rs 150.

All very impressive; but how many traders managed to grab their profits? The fall in the markets was 10 times as swift as the rise,catching most traders on the wrong foot. Most small speculators were forced to swallow losses.

The circuit breakers on the stock exchanges fueled the panic further. Once a stock hit the lower circuit, traders were unable to liquidate their positions at any price, high or low. Nobody wanted their stocks at higher prices and prices were not allowed to fall lower until the next settlement.

Unable to cut their speculative positions, traders and brokers were forced to default. Such news and rumours of a more wide-spread default caused the market to decline further. Bad news, it seems, does not come in small doses; specially for the speculative community.

Visions of great wealth, easily obtainable, has eternally fueled the greed of investors. It is human psychology that people would rather be promised a winning lottery ticket than the opportunity to get rich slowly. But it is a fact that there are no free rides in this world. There is great risk associated with riding the trend in a stock that is zoomingupward. Most investors manage to catch the trend too late and end up taking losses.

Greedy investors are a market manipulator's lawful prey; only the manipulator makes money while the small investor is left with worthless scraps of paper.

Further, such stocks which have no fundamental worth remain on the portfolio of investors for years. Investors easily fall in love with a stock that multiplies in price - even temporarily. Love turns into pride as they then boast about their achievements, and then turns into confusion as the stock begins to fall. Disbelief and stubbornness then force the investor to continue to hold on to the scrip waiting for it to reach its `true' potential. Thus, one small attempt to make money fast, depresses an investor's portfolio performance for years. Ultimately, after waiting for years, the investor may tire and in the midst of a panic, sell the stock at rock bottom prices.

Powerful emotions like greed and panic destroy an investor's ability to take advantage of the market.Greed makes an investor believe in rumours, hunches and tips and buy into a stock at a price far greater than its value. Panic makes an investor sell his fundamentally sound stocks at absurdly low prices, just before prices again start to rally.

It is not easy to control your emotions as the stock market moves through its cycle and people everywhere are surrendering to greed, euphoria or panic. But those who surrender to this crowd psychology buy only when others are eager to buy and sell when others are selling in panic. This is a losing approach. A good buying time occurs in the absence of excitement -- when there are doubts about the market's ability to pick up and rally again.

Similarly, a good selling time occurs when every monkey and his uncle is searching the stock pages in the morning newspaper for a multi-bagger.Investing works best when you try to be greedy when others are fearful and fearful when others are greedy. It is said that, "The critical issue in investing is not the business cycle orthe economic cycle; it is the psychological cycle." Disparity in market performance generally boils down to how well each investor individual can invest against his emotions.

The key to making big money in the stock market lies not in making the big gain, but in having sound principles of operation and slowly and steadily compounding your money. Eschew emotional decision-making and cultivate qualities like patience, discipline and rationality.

Know where the real rewards and risk of investing in equities lie, set an achievable target over the long term and be patient. Don't let the market's ups and downs distract you from what you want to achieve over the years. More money can be made by sustained compounding at 25 per cent per annum than you can dream of. Only when the proper temperament joins with the proper intellectual framework, can you get investing profits.

Parag Parikh is the chairman of Parag Parikh Financial Advisory Services