On vacation earlier this month my wife and I visited a casino during an evening with friends. We were clearly the poorest of our group. We started setting a limit to the amount we would lose that evening. Like all our friends, we lost. The difference in amounts lost was just a matter of decimals.

The losses showed us who paid for plush setting of the casino, good liquor and food, served “free.”

The capital markets are in some ways akin to a casino. Large advertisements by merchant bankers, stockbrokers and mutual funds are paid for - by the person in your mirror.

I have written earlier about methods of analysis. At the risk of repeating them, then: they are fundamental, technical, and logical. Call them the three guides to making money.

Three ways of losing money would be:

1. Gambling on horses, cards or at the casino - the fastest

2. Women - the most pleasant

3. Speculating on the stock market - the most certain and definitely the most boring

Add to these, a fourth - watching too much TV or reading too many expert opinions, mine included. Rewind to the beginning of the last boom and early April 2003 when the jokers on TV suggested a drop to 2,200 for the Sensex from 2,800. Less than a fortnight later, this same bunch was speaking of the Sensex going up to 6,000. There had been no fundamental change during those two weeks.

Fast forward to January 2008: 25,000 was almost the overnight target, 40,000 in the rather near future, for the Sensex (which was then at 21,000). During a meeting with a brilliant fund manager recently, he showed me a clip from a TV channel. It had a number of the most respected names in the capital markets providing sound bites on the Sensex crossing 20,000. Everyone was advocating a buying spree. There was to be no end to the boom.

Now the same purveyors of garbage suggest 6,000 and lower. The difference is that we have a fundamental change in lower earning forecasts, which was obvious even before Diwali 2007 when the index was around 20,000. Will the experts be correct in their bearish forecast? Unlikely for an extended period, would be my guess.

Yes, they will be for a few days, or weeks. Fear and the memory of recent losses will ensure the investor will refrain from committing fresh money to the markets. But the smart money that exited the markets in January, close to their peak PE of 30 on the Sensex will nibble at choice stocks on offer, now at a market PE of about 10. Along the way will be opportunities to grab at the feast table - opportunities such as a payment crisis, the failure of a large institution, announcement of elections or formation of a Government, when shrill loudmouths, only distinguishable by their shrillness, from Mayavathi, Jayalalitha, Mamta Banerjee, Yechury, and the Karats confirm their idiocy on TV. Each occasion such as the ones mentioned above that causes a temporarily sinking Sensex, the smart money will refill its pockets with the crème de la crème of the equity markets.

Start loosening your purse strings in bits and build a quality portfolio. Take a couple of years doing that, for the opportunity cost of money in a stagnant market would mean an erosion of 50% of your money’s risk-adjusted value in 3 or 4 years. At 10%, the current bank FD rates, your money doubles in about 7 years. Expecting double that rate of return on equity investments is fair considering the market risk, thus leading to my above assumption. However, the markets might just surprise and double next year or stay flat till 2015. I am not gambling on the time frame!

Getting into an SIP in mutual funds, or directly in a personal portfolio is a good idea now. This will likely be a good sum in 10 years, if not sooner.

Meanwhile, if you decide to visit that casino carry just as much cash as you believe you’d pay for a nice evening. You will also find that it’s a lot more fun losing it yourself, than on the advise of an expert.

Naveen Fernandes is Vice President - Sales at Orbis Financial Corporation Ltd., a SEBI approved custodian. He is a Certified Financial Planner. On good days, he fancies himself an investment expert.