What Moves the Market

Tune in to any finance program on TV and you will hear a talking head explaining why a particular stock or the overall market moved the way it did. These crack me up. Occasionally they are clearly right, like when the market tanked on 9/11. But most of the time they are just guessing and trying to impress clients. There are thousands of interrelated things going on every day, and some guy knows which one was responsible for a 1% move in XYZ? I don’t think so.

The only thing that moves the price of a stock or the market at large is what you learned during the first week of ECON101: supply and demand. When more people want to buy than sell, prices go up, and vice versa. And the big players like VanRockStreet buy and sell tons of stuff every day, regardless of price movements. They add some here, trim some there, rebalance–they have to look busy to justify their paychecks (and massive bonuses). Warren Buffett (or Todd and Ted) doesn’t trade much because he doesn’t have people looking over his shoulder and judging him.

There’s an oft-repeated anecdote about JP Morgan being asked what the market will do. He replied, “It will fluctuate.” I love his refreshing honesty. Let me be more daring and put myself on the line: In the long term, it will go up. That’s all most investors need to know. – DG

Investing Advice From The Other Benjamin – Franklin

Everybody knows that when it comes to investing, the words and principles of Benjamin Graham are golden. But Benjamin Franklin also had a lot to teach us about investing, beyond his “A penny saved is a penny earned” axiom.

Franklin started with nothing. One famous anecdote has him arriving in Philadelphia as a boy of seventeen with only two loaves of bread and a few coins. Yet he ended up as one of young America’s first self-made millionaires.

Most of the Founding Fathers’ wealth was in land and slaves. Many died in debt, despite their paper assets. High expenses and low cash flow saw to that.

How did Franklin become rich? He started as a printer’s apprentice, which was nowhere near as glamorous as the ones on Donald Trump’s TV show. He scrimped and saved enough to start his own printing shop, printing newspapers, almanacs, and even money for the government. Then he invested in other aspiring printers, funding them to start newspapers in different cities in exchange for a share of the profits. He scaled up his business and created a media empire.

As an ambitious twenty-year-old, Franklin sketched out a plan for his life. It consisted of four simple steps:

  1. Frugality – to pay off his debts and raise a stake. Franklin even became a vegetarian to save money.
  2. Truthfulness – and don’t promise more than can be delivered.
  3. Industry – “avoid any foolish project of growing suddenly rich; for industry and patience are the surest means of plenty.”
  4. Diplomacy – speak ill of no one (even if it’s true), and speak only good of everyone.

Sound advice for his time and ours.