If one were to assume that the stock market is nothing more than a laboratory where one tests molecules (read stocks) to validate their efficacy (read value), then consider a decline in equities as the investing equivalent of a clinical Phase One trial.

Because if molecular characteristics (read fundamentals) give you your first nudge of therapeutic capability, then the relative performance of this molecule in a stressed environment (read decline in equities) endorses whether it possesses the strength to outperform the rest of its family (read industry) and universe (read market) on the rebound.

So a stressed environment is Christmas for the smart researcher: it enables her to validate some of her fundamental convictions; it enables her to shift from a molecule of low price-therapeutic value to a superior alternative based on the emerging realities of a dynamic environment. So in times of decline even as the quick-fixers complain of being put out of a living, the serious look at their watch and say, “Oh, time to get back to work”.

I can get you a lifetime membership of the mystical Meltdown Molecular Society, an exclusive collection of scientists (read value pickers) fussy about membership into their inner circle, working discreetly behind anonymous names, obsessing with performance when others talk price, worshipping value when lesser devotees fret about volatility and generally entering when others exit.

Over the decades, some of these scientists have aggregated their wisdom into sacred testaments. Their chapter on “Reactions” is being presented exclusively in MONEY TODAY:

Law of Value: Thou Shalt Buy Cheap on Retrospective Performance

“We members of the Meltdown Molecular Society define cheerful optimism as a period when every second so-called scientist will start projecting molecular efficacy on the basis of how it will perform in the year after and (incredibly) the year after the next.

If worlds were predictable, astrologers would live on dole tickets. Sell. “It is our learning that molecular prices usually decline to a point when they are attractively priced for retrospective performance. Buy.

“Whatever therapeutic value you get out of the molecule from that point onwards will accrue free to you across the tenure of molecular efficacy.”

Law of Relative Strength: Thou Shalt Conduct Serious Inquiry Into Least Decliners

“We members of the Meltdown Molecular Society have observed over time that, all things being equal (ceterus paribus), the least decliners in stress environments are usually the earliest and quickest risers during recoveries. Track these nuggets; they may lose money over the short term; they inevitably enrich thereafter.”

Apply the second part of these teachings: between 21 and 23 August when the market appeared to have bottomed out, Chambal Fertilisers and Sujana Towers hit highs on each successive trading day, one of the few trusted ways of picking stocks.

Shhh... The wisdom of the sages doesn’t come cheap (at best); or doesn’t come at all (at worst).

Mudar Patherya heads Trisys, an annual reports consultancy. He can be reached at mudar@trisyscom.com