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Jack Falvey's Investor Education Briefs: What price will the market bear?

By JACK FALVEY
September 09. 2018 11:06PM




Price increases are hard to do. Price reductions are always welcomed. With those immutable truths, the art of determining what price an ever-changing market will accept is bookended.

Supply and demand determine much, but value is in the eye of the beholder. Curb appeal in real estate counts. Packaging sells. Exclusivity will be paid for. Reliability, quality, service, responsiveness — all can be part of the price. Price point determines perception. When investing we are told to buy low and sell high. Few are able to execute. Buy and hold requires courage.

Price elasticity determines how high is up. At a certain price point the market begins to shrink. Adding value may allow prices to increase. General inflation will do the same, but with no real gain to buyer or seller. Too much money chasing too few goods or opportunities will cause prices to increase. This is the pure application of the supply-and-demand curve. Understanding all these forces, most often all acting at once, is a subjective art at best.

How do you adjust your financial planning accordingly? First, have a plan. Adjusting from a base beats reacting to circumstances. Getting a second opinion beats not doing so. Knowing what you are holding and why in the age of mutual funds is not always obvious. Who is buying or selling what for you is sometimes almost invisible.

Being a student of the forces that drive price subjectivity will determine the eventual value of your investments. Emotion drives the day to day in the world. It also drives, to a lesser extent, our invested net worth. This is not an easy game to understand let alone master. As part of our economy, we are all in the game.

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Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org


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