Markets have more than doubled money in 5 years. Have you?

Interestingly, March 6 also marks the five-year anniversary of the bottoming out of most global markets.

The pessimism that existed back in 2009 -- the Sensex stood at 8,325 five years back -- compared to the optimism that appears to be engulfing stocks now serves as a nice study in contrast.

It is the nature of markets and a fact borne out by data that, by sheer dint of mechanism, inflows will be the highest at the peak of stock market bubbles (such as in late 2007-early 2008) while outflows will peak when shares are bottoming out (which push markets to that low point).

But it is often the retail investor that is the worst timer, says Prashant Jain, chief investment officer at HDFC Asset Management Company, the largest fund house in the country whose schemes are often rated by fund watchers rated as among the best.

Also read: Bearish on FMCG, things improving for infra: Prashant Jain

In the past five years, the Sensex has more than doubled. In annualized terms, its return stands close to 21 percent while 14 schemes that have a Morningstar rating of five stars have clocked about an average 26 percent growth.

But investors not just plowed in most of their investments not just at peak valuations, they sold the most around the bottom and also about every step of the way to the rebound (outflows into equity funds recently stopped after a multi-month run, according to Association of Mutual Fund Industry data).

“It was a record year for us,” Jain says, referring to 2007, and points out that the price-to-earnings ratio for the Sensex stood at a whopping 25 times. The PE ratio at the 2009 bottom stood at 10.

Much liked Buffett who he admires much, Jain has been an advocate of contrarian investing and works hard to put it into practice. His top HDFC funds famously swore off speculative fare such as real estate and infrastructure stocks in 2007 -- when mostly everyone else was lapping them up -- even though it resulted in temporarily underperforming the benchmark.

Jain’s advice to investors is simple: force your hand to invest when PEs are low. This typically happens when there is bad news all around and stocks are a bad word – the buy-low part.

“The Sensex today is at about the same level as back then (in early 2008) but the economy has doubled since,” Jain says, pointing out that the resultant compression in the PE ratio to the current 15-16 levels makes it a time to “add to equities”. 15 is also the historical average Indian shares have traded at.

“In our opinion, it is very clear whenever you have invested in India below 15 PE, over the next three and five years the returns have been extremely good,” he says.

But given the way the greed-and-fear cycle works, investor interest in stocks may likely pick up considerably only after a strong bout of outperformance--but only when they have turned fundamentally expensive.