The normal market movement theory is flawed, as anyone who lived through "the booms and busts of the 1990s can now see", says Mandelbrot. Indeed, this 81-year-old founder of fractal geometry goes on to say that the entire field of investment analysis is founded on a few shaky myths such as market moves are normal and random. The result of following such myths can be quite devastating - like the shock from the recent sharp market decline. According to him, accepted wisdom substantially underestimates the potential for loss when markets go down. What do you need to know to deal with the sharp rises and declines that markets undergo periodically? According to Mandelbrot we need to know the four ways markets differ from popular perception.

Markets are Risky: They are much riskier than most imagine - the recent decline drove home this point.

Markets move in Streaks: Contrary to the accepted wisdom, big moves are often followed by big moves. There are long streaks - witness the continuous rally since October last year.

Behaviour can Override Fundamentals: Markets are driven by the actions of people, not by fundamentals alone. The collective mania of foreign investors followed by locals piling into the Indian market drove it to peaks in 1994, 2000 and 2006.

Markets Mislead: Investors love to find patterns and correlations. These work for a while and then suddenly break down with a severe force. Markets love to surprise. In short, frightening declines like we saw in mid-May are not rare. It has happened in 2000 (dotcom crash), 2001 (9/11) and 2004 (after the general elections). That's just six years of recent history. The reasons were different each time!