| My grand father used to raise a lot of hogs. He had | | | | There is no consistent demand for a certain stock |
| observed the market and discovered that most | | | | and the amount of stock available is largely |
| people lost money on them. As he watched, he | | | | determined by how much people want to sell, rather |
| observed that hogs reproduce about twice a year. | | | | than the rate at which more can be produced. This |
| Furthermore, they have large litters, and thus can | | | | makes predicting market swings far more difficult. |
| easily flood the market. | | | | Just as people wanted to buy hogs when the price |
| When prices are going down, everyone is trying to | | | | was going up, people want to buy stocks when the |
| sell pigs to stop their losses. This pushes the market | | | | price is going up. Sellers will want to hold on until they |
| even lower, increasing pressure to sell. As the surplus | | | | make a sizeable profit, reducing supply. When the |
| pigs are used up, the price begins to rise. When it | | | | demand gets too high prices reach a level where |
| reaches a point where it is profitable some begin to | | | | people cant afford to buy and reducing demand, |
| buy and breed more stock. As the price rises higher, | | | | which drives to price back down and those who |
| their profits grow, and others jump on the band | | | | bought at the peak become desperate to sell, driving |
| wagon. The market becomes saturated and prices | | | | prices down even faster. |
| begin to fall. Those late comers paid high prices and | | | | Since the demand is largely based on peoples |
| now they fear they will lose if they delay and the | | | | perception of the possibility of profit rather than a |
| cycle starts again. | | | | real need, it is far more erratic, making the market |
| Granddad realized that if everyone was wanting to | | | | far more volatile. One cannot time the cycles to |
| get pigs to get in on the high prices, the price would | | | | make consistent profit. |
| soon be forced down. If everyone had sold out , | | | | Nevertheless, the principle of selling when many want |
| there would soon begin to be demand, driving prices | | | | to buy and buying when most are desperate to sell is |
| back up. By taking a contrarian position, increasing the | | | | a proven strategy. While one will seldom sell at the |
| herd when prices were low, and selling out when | | | | peak, as one counselor said, "you can't lose money |
| they reached profitable levels, he was able to | | | | taking a profit." If you buy stocks at a level where |
| consistently make money on the hogs. | | | | they are a good value, they will pay off. |
| Later. He realized that the same held for the cattle | | | | I was interested to note that some professional |
| market and was able to make more consistent | | | | advisors are recommending selling off stocks in the |
| profits on his cattle well, although the swings were | | | | present environment, based on the high profits and |
| slower and less easily predicted. Because of the | | | | the number of people involved. As one said, "We are |
| prolific reproduction of hogs, and the actual number | | | | starting to run out of buyers." In other words, |
| of people eating pork was fairly consistent, the cycle | | | | demand is slackening, which will cause prices to fall |
| tended to be about every two years. Cattle required | | | | for many stocks. Don't try to time the market. You'll |
| six to eight years to make the same cycle because | | | | almost always be wrong. It'll be better to settle for a |
| of the lower reproduction rates. | | | | smaller profit than to risk a huge loss. |
| Investing in the Stock Market is some what different. | | | | |