Escalator Yo-Yo
Now the escalator itself might represent inflation or productivity over time, perhaps both, while the yo-yo spinning up and down constantly represents the inherent day-to-day volatility of the stock market dipping down and bobbing up.
Short-term, from the man's perspective, the stock market is demonstrating extreme swings in movement, yet all the while the escalator is slowly, methodically, moving higher and higher raising the relative baseline.
Yet as we have all experienced, an escalator can and does stall or break. That is rarely for long. Mechanics come and "fix it" (read Federal Reserve) and it is off to chugging along again, day-after-day.
What makes this analogy so interesting is the combination of both economic and physical law truisms; namely inflation acts as ever-increasing entropy, while man constantly seeks technological solutions to life's challenges.
Coupled together, inflation and productivity push markets higher in both notional and real values, while the day-to-day swings offer prices points for entry and exit to millions of market participants.
One of the inherent functions of a market is timing. Timing in the purchase and sale of assets relative to their perceived value at that price point in time.
As we have seen on a nearly every-other-day basis this summer, traders are actively probing entry and exit points for equities. In spite of high(er) oil prices, two global conflicts, and daily (re)evaluations of tech pricing the markets have continue to rally higher.
So while short-term traders are watching the Yo-Yo, readers of this blog who desire to Invest Like A Farmer (ILAF) are using sell-off timing to their advantage and riding the escalator higher and higher while being prudent not to find themselves the "exit liquidity" many VCs and Investment Banks so cravenly need.
