Cashtoons

The Moody Market

January 29, 2021

First, a Short Flashback:

Last week we ended with the economy, the place where companies live. When the economy is doing well, people feel comfortable spending money.

They’re on Spotty’s savanna, where food is easy to get and everyone is fat and happy. But unlike the gazelle on the savanna, in the economy, the more everyone “eats,” the more there is for others to eat. Spending moves money around. More businesses get that money and then feel that they can spend too.

movingmoney

Last week we said that if businesses were cheetahs and the economy where the savanna, we would be able to see how much each cheetah ate for dinner. But there is an important difference between the stock market and the places we looked at last week (the savanna and the economy).

Unlike the gazelle and dollars in Boomer’s cash register, the money paid for stocks can change depending on what people think and feel.

The goal when you buy stock:

You want to buy low.

smallmoney

Sell high.

big money

Enjoy the profit.

relaxing

When the only possible price is written on the tag, the price won’t change. It doesn’t matter if there are 10 people who want the shirt, it will still cost the amount written on the tag.

pricetag

When buying a share of stock, the prices are not set.

stockprice

Purple is willing to pay the most, so the price will be set there if the person who owns the stock agrees to sell. The price will likely go up so long as there are people willing to buy. Or something could happen that would change how everyone feels and all the prices offered could go down.

lowprice

What can change the price? So many things! Including what people are thinking and feeling. Even what people guess others are thinking and feeling. Will there be a heat wave before summer and everyone will want ice cream in February? Will a lot of people start working from home and need to use online systems to video chat?

thinkingdollar

So stock prices change from day to day, or even minute to minute.

The gazelle running around the savanna are real, people’s guessing that more gazelle will be there does not change anything for the animals on the savanna.

gazelle

The money Boomer is getting for ice cream is real. Feeling like he will make more money does not magically make the line for ice cream longer.

icecreamline

Unlike the number of gazelle on the savanna or Boomer’s line for ice cream, the amount of money paid for stocks changes constantly. Prices go up and down like the waves of the ocean with the thoughts and feelings of the buyers and sellers:

ocean

So how can you make good investments without a crystal ball to tell you the future?

crystalball

One way: play the long game. Don’t buy stock expecting to sell it tomorrow for a profit. Choose stock in a business you think is strong regardless of the changing moods of the stock market and then be ready to ride out the bumps, meaning you won’t sell even if you see the price dropping a bit.

Think of yourself as an ant:

ant

It is hard to see the larger picture, because we can only see what is right in front of us. That cliff looks like it will go on forever. We despair that our stocks are worth less and less everyday. But what if we could back up and see the ups and downs over a longer amount of time.

ant2

That’s little you circled in red. You are still looking at the cliff. But take a look at the direction the stock is going overall, if you smooth out the bumps:

zoomout

You chose a good investment! Your stock is steadily growing, maybe not minute to minute but definitely year to year. Just don’t panic when you see some ups and downs along the way.

Last Note: For anyone who still wants to make a new year’s resolution they can forget about and still keep:

This is the last post of January. You can still go to your bank account online. Find that password, move the cat off your keyboard…

  • Look up 10% of your usual deposits.
  • Set an automatic transfer for that 10% amount to go from your checking to your savings account 1-2 days after it was first deposited.

Done! Celebrate!

celebrate

Sources

sources

Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor


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