Some Excerpts of interview of Mr. Ramesh Damani, one of the top investors of our country as published in rediff.com on May 06.
This is a beautiful interview and a must read as it has universal truths and pearls of wisdom.

What are the symptoms of the first phase of a bear market?
During the first phase we are just getting out of a rampant bull market and we are now moving into the bear market, so public confidence is still very high in the stock market. Typically in the first phase of the bear market, the news will continue to be good. The headline will continue to forecast good GDP growth, good profit growth, but the market will not react to the news.
The market will tend to sell-off even on good news, and if there is good news, it will turn a deaf ear to it. But it will react over bad news. So that's a very key psychological indicator. Only the big headline merger will occur at the top. The past six months or one year have been very rich for the primary market but once we enter a bear phase, the public appetite for new issues almost dries up.
When does the second phase of the bear market begin?
Again the news is very important. In news, the market would disregard bad news but will rally when you talk recovery. However news continues to be negative and market stops going up, the market doesn't react to news. Again it's one of the most important psychological dimensions of the markets - the way it reacts to news.
By now public confidence, in the market is also shaken because they are not seeing appreciation in their portfolio. So now, the public is starting to get a bit disgruntled over the market. Maybe this is not a bull market and maybe everything isn't rosy as is made out to be, so very quietly, almost invisibly the market slips from a bearish phase I to bearish phase II.

Now on to the third phase, which is perhaps the most dangerous where you will be sitting at the bottom of a market and you have to really struggle to get out. When does it really get bad and really acute? Again it's almost invisible, there is no clear demarcation. According to a Chinese maxim, there is a single character that identifies the word crisis and opportunity. Phase three is typically a phase where the public panics and I would suggest that's the phase of maximum opportunity. In the last phase of a bear market, you know that the bull market is not far away. It still teaches us, whether it's the Dow Jones in the 1980s or whether it's our own Indian stock market or any market in the world, no bear market is permanent. But a bear market can wipe out 98% of stock gains.

What are the 2-3 points that will really stare in our face and tell you that this is the third phase and it's time that you get in now?
It counterintuitive. It's against human instinct because the headlines in the paper will be very bearish. Tisco's profits are slashed, Indian tech exports are at an all-time low. The news consistently becomes bearish and the public is dumping bluechips. But at the same time, the smart money in the market, which we call 'informed money in the market', is buying because they are looking ahead of the market.
The primary markets would be bone dry, you will see a fall because now the public is dumping bluechips. So while there is no art-form to decide between the second and third phase, generally the more the desperation in the market, the more people there will be who say I am never going to come back in the stock market. Generally, it's a good time to start thinking about stocks again when the public gets fearful, you want to be greedy in terms of buying stock.