A Dog's Tail ... Uhm Tale (About The Stock Market)

Hi Friends

Many still have problems with the ups and downs of the stock market. That’s why I came up with this tale of a dog walk.

Suppose you have a dog and you go for a walk, just you and the dog. You go to a beach where the dog can run free and you want to make a walk of a few miles. You walk along the shore at a steady pace. What will the loose dog do? It will run and play. It will chase birds, stop to sniff something, it will be far behind you and then, with a sprint pass you and run far before you.

The dog is the stock price, and you are the fundamentals of a stock. If you stop, you won't reach your goal. Generally, the dog follows you, but definitely not perfectly. The fundamentals and the stock price are not the same; they are not at the same place that often, only every now and then. But they walk in the same direction.

The most important thing to know is that the dog will follow as long as you keep walking, in other words, the stock price will follow the fundamentals over time.

If, at a certain moment, the dog is behind, you can panic that you will lose the dog, but the more you have taken that walk with the dog, the more you know that it will come back at a certain moment.

Why is the dog sniffing and staying so far behind while you keep your steady pace? The answer is that it's a dog. It is how it is; it does what dogs do. In the same way, in the market, traders trade; that's what they do.

They often cause sector rotations and can lift stock prices up or smack them down... over the short term. And that's what is what was happening in 2021 and 2022. There were market rotations from tech stocks to the old industries in the Dow Jones.

Most people see volatility as something bad because of the inherent big drops, but you also need volatility to realize high returns. Without the power of volatility, you can't have outsized returns. Of course, everyone would want upside volatility and downside stability but that's not how it works.

Conclusion

I hope this dog’s tale can help you if the market runs ahead of itself or if it’s too far behind. Both will happen in the future, just as they have happened in the past.

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In the meantime, keep growing!