I can calculate the motions of the heavenly bodies but not the movements of the stockmarket
Sir Isaac Newton, in the 1700s

Obviously it wasn't just apples, gravity and the laws of motion that kept Newton busy. He also dabbled in the stockmarkets, and as the quote above indicates, with little success: In fact he lost a fortune in an apparent "hot stock," South Sea Trading Company, which was tipped to grab trade monopolies in the South Seas. It didn't. And, along with thousands of other investors, Newton got wiped out.

Now you must be wondering about the relevance of bringing in Newton to introduce you to an Investment Special, which hopefully should help you go about the task of allocating your hard-earned surplus in avenues that will aid appreciation (of not just your money but also of this magazine!). Well, it's pretty simple, actually: Even a Newtonesque IQ can't guarantee that you will make money in the markets. Or to put it another way-a more positive and reassuring one- many of the people out there raking it in could easily be idiots.

Actually the main reason for bringing in Newton is this: Almost every investment advisor, fund manager, research analyst or tipster you've bumped into of late has been telling you that the "long-term trend is bullish," or other words to a similar effect. Nobody-certainly not BT-is disputing that. What you should be cautioned against, however, is getting so caught up in the bull frenzy that you put your entire investible surplus into equities, or worse into one sector, or even worse, into one stock. The long-term trend may be bullish, but that doesn't mean you can't get wiped out. If Newton was around, he would have confirmed that.

Here are some points to ponder before you plonk your investible stash on your friendly-neighbourhood broker. First of all, break up that stash into smaller lots: As the many features that follow this one in this issue will reveal, there are plenty of other investment options out there, and equity is just one of them (albeit at this point in time the most attractive). The proportion of your exposure to equity should vary according to your age-as you grow older, your penchant for risk should typically reduce (unless, of course, you think you're Mick Jagger). Andrew Holland, Chief Administrative Officer & Executive Vice President (Research), DSP Merrill Lynch, recommends a 60:40 ratio in favour of equities. "And since your horizon is long-term, the state of the market-whether bearish or bullish-shouldn't be determining the proportion," he adds.

The good news, of course, is that the bull market is here to stay-DSP Merrill, for instance, expects the benchmark Sensex to end the calendar year at 6,500-6,600, and its target for 2006 for the 30-share index is 10,000. Whilst such predictions are heartwarming, remember too that the heady gains of the previous year-during which the indices doubled-just can't be repeated. At the existing 5,800 levels, you have to be foolhardy-which isn't unheard of in manic times-to expect a rerun of the 100 per cent rally witnessed between May and December 2003 all over again. A 15-20 per cent gain in a year, which is nothing to be sneezed at when you compare equity with other avenues, is more realistic.

But then, it isn't always easy to be realistic when the going is good. So if you're looking for higher returns over a shorter period you should be eyeing the primary markets, where initial public offerings (IPOs) are listing at wild premiums to their issue price. Only last fortnight, for instance, the state-owned Power Trading Corp (PTC) and biotech wannabe Biocon India flagged off their innings on the bourses with a bang. PTC, which was offered at Rs 16, and oversubscribed 46 times, opened at Rs 32, zoomed to an intra-day high of Rs 46.35, before ending the day at Rs 44.65. Biocon too hit the high notes, closing the first day at Rs 484 after hitting a high of Rs 507. Offer price: Rs 315. Such 75-100 per cent appreciations aren't par for the course, but analysts point out that most of the public issues slated to hit the market should comfortably list at a 10-15 per cent premium to their offer prices.

The trick here, of course, is not to get caught with a lemon-and we can assure you that there will be a fair share of those. Now that pearl of wisdom applies to every stock you decide to buy. When doing so, what will put you at ease is the fact that analysts expect earnings growth to be sustained at 20 per cent for the next couple of years. So even when (if?) the Sensex hits 10k by 2006, the price-earnings multiple will still be a healthy 14, which yet doesn't make the Indian market look expensive. Now there may be a few sectors in which 20 per cent bottom line growth may not be sustainable, so such stocks may easily be overvalued. Try spotting industries that haven't yet fully participated in the rally. A good example: cement, which is due for an earnings upgrade, what with prices rising. Meantime, the auto, power and banking sectors are on a high, and there's little reason for the party to end for these companies. At the end of the day, it's all about stock selection. It may be a bull market out there, but that old truism still holds good. Fools and their money are easily parted. Some geniuses, like Newton, too will agree with that.