To get a better understanding of the roots of current volatility, you needto start at the beginning of November, 1999. The Nasdaq Composite index tookoff from 2830 level to post a high of 5000 in around four months' time. Thiscoincided more or less with the Sensex taking off from the bottom of 3000.In the period of last four months most of the information technology stocks,on the average made whopping gains of around 350 per cent.

Is there any surprise that there is so much of selloff just now. The Nasdaqindex has given up a little over 60 per cent of its peak value. In terms ofthat index the person who invested in October 99, but did not book profitwould now have only around 15-20 per cent profit on his books. The sameapplies to those who invested in Indian infotech companies. But they areluckier than those who invested at high levels. As prices of software scripsrose, investments were made by a whole range of investors at higher pricelevels. They included speculators, bulls, mutual funds and FIIs. The tradingsavvy investor kept booking profit at every level and kept re-entering. Butclearly the connection with fundamentals was getting distanced further andfurther.

The balloon had to burst at some point of time. And it did with the risein US inflation figures. The game has now acquired a totally differentdynamics. Earlier, it was more or less certain that there would be anotherbuyer, who will buy the scrip at higher price than what you paid. But withthe logic of the spiral having been pierced, the spiral has no other way butto wind back.

As it winds back, I am sure speculators will try and build up one morespiral on the ruins of this one. Also they may not let this spiral wind downall the way back to the ground level.

And what would that ground level be. It has to be the prices that couldsupport the fundamentals. Here enters a new criteria. Investors have startedbecoming choosy, and quite naturally. It does not make sense any more in thechanged circumstance to bet on any scrip indiscriminately.

Gone are the days, when even venture capitalists lapped up dot.com companiesin the hope of trading them off at even higher prices. The same logic nowpercolates to the stock markets.

So there is bound to be a differentiation. Yardsticks, though not strictlythe old time financial fundamentals, will come into play. But yardstick isanother story.

Now let me come back to the volatility factor. Volatility seen in the lastfew days is nothing but a by-product of the puncturing of the spiral pricelogic that existed earlier. It should not surprise you, therefore, that ithad such a violent blow out. But volatility will surface again, as punterstry to build the spiral again. It is a peculiar situation. You cannot be outof this process. But at the same time, it does not make sense to venture outblindly.

I think in the new reckoning, the PE multiples above 100 will come with ahigh volatility risk. The ideal and safe pick would be in the range of60-80s. This discounting is still high, but provides for the high earning aswell as the high future potential. Anything higher has the same risk as wehave now seen in the last few weeks.

There would be exceptions to this rule based on sound reasoning. But Infosysprice behaviour has shown you that nothing is sacrosanct.

Realising this, I believe there will be repeated profit-bookings as pricesrise. Not only that, those who have invested at higher levels than currentwould look for a way out. And then you must remember that this runawayspiral had been just four months old. It makes sense therefore to becautious and see if the maturity process sets in when it comes to investingin software stocks. The important thing, is, it is you who contribute to thevolatility or maturity.

In my view, the average investor must differentiate himself from themarket-operation savvy punter. For your own safety you should choose to playfor the long. And again remember, if you have made investments at the peakof a market, it takes time even to recover your capital. It is finally a setoff between the return and the risk. And the risk is considerable, if youcan figure out that your capital may get decimated to one-half ortwo-thirds. The ideal approach would be not to support the market at higherlevels with the inherent risk to yourself. As more and more people jointhis, and not help the speculative sharks, the prices are bound to comedown. And then invest at lower levels and again for longer periods. Refuseto play for short. It helps noone and hurts everyone badly. Only very fewgain.