Friday Dec 13 2019
Buy Low Sell High, Why so Difficult?
Friday Dec 13, 2019, 7”00 AM CST
In a special column edition we take a look at why markets act rather than just what is happening.
It is October, 1500 AD and we are Comanche, Plains Indians, hunting buffalo on foot. Our tribe would become the best light cavalry among all Indian tribes. But that event is postponed until 1730 when we finally would steal enough horses from the Spaniard invaders.
Our Comanche, unlike the Osage tribe, did not raise crops or live in permanent villages. We moved with the buffalo herds as hunter gathers had always done. We are ‘armed’ with spears consisting of a wooden shaft and a tip shaped from flint. It is more symbolic than useful against our prey. A buffalo stands six feet tall and weighs 1,000 pounds or more. Still this is our destiny. As we lack the means to kill them, the best strategy is to drive them over a cliff, falling to their deaths below. After scattering our group across one flank of the herd, we begin the daunting task of driving them to the cliffs. This requires we make lots of noise, running amok, and shaking our spears. At first it works. Frightened from their grazing, the animals herd and begin ambling then running away from us. They are faster than we who are on foot. As I run alongside a large male, suddenly his eye meets mine. Sensing my fear, he begins to slow.. Then he stops, then the herd joins, nervous now but soon angry. One can see it in their eyes and sense it with their heavy breathing. This lead male turns as does the herd. We are now the hunted. Running as fast as possible, we clear a rock pile further heightened with some fallen logs. Hiding in the shallow of its cover, the herd thunders around and over us, not stopping to ferret us out. We return to camp without the prey which provides our robes and food, but with our lives. We live to hunt another day.
This is precisely why buy low, sell high is so difficult. As investors, humans are still hunter gather wired for danger. When the buffalo turns,, either run or lose your life. And so when the headlines read
- Natural Gas prices plunge on surplus supply
- Brexit woes drive British pound to new lows
The average investor seeks cover in the rock outcropping, so to speak, rather than scoop up a potential bargain. The roots of fearful social mood lie in the amygdala, a bundle of neurons just above the brain stem. The response takes no time, and if we are to survive an animal charge that is a good thing. But not so much in year 2019 when buy low sell high becomes the new buffalo hunt.
Predictions of a low in energy share prices have arrived. Natural gas prices rose 3.8% yesterday. After a change in Prime Ministers and weeks of negative press, the British pound rose 2.5 %. Casino and chemical shares (mood and industry stocks) get a boost from the China trade deal. Schlumberger SLB has risen $6 in the last month, just as Wall Street gave the energy service sector up for dead.
Individuals can be taught via socionomics (socionomics.net) to avoid running with the herd. But it ain’t easy, those buffalo were a fearful, thundering herd. Come to think of it, so are most investors and fund managers, a thundering herd usually turning fearful a bit late.