JANUARY 24
Markets Discover Truth
The World’s Greatest Discovery Machine
The Signal
Markets do not decide value. They discover it.
The Reading
Walk into any supermarket and every shelf has a price. Milk has a price, bread has a price, coffee has a price and chocolate has a price amongst all the other things we reach for in the supermarkets. Then gold has a price, houses have prices amongst a variety of other valuable items. The natural question is, who decided these prices? The surprising answer is, nobody did.
Every price you see is the result of millions of people making millions of independent decisions. A farmer decides whether to plant another crop, a truck driver decides whether rising fuel costs make another delivery worthwhile, a café owner decides whether customers will still buy coffee after a 50-cent price increase and a family may decide to cook at home instead of eating out. Every one of those decisions changes the market, even if only by a tiny amount.
Imagine it costs $2,100 to mine one ounce of gold, but buyers are only willing to pay $2,000. Mining companies begin closing expensive operations because producing gold no longer makes economic sense which means less new gold enters the market. Scarcity slowly increases and if demand remains strong, the price begins to rise. Eventually mining becomes profitable again and production returns. Nobody ordered it, nobody voted and nobody was in control. Millions of ordinary people, each acting on the information they possessed, slowly discovered a new price.
Markets are not perfect. Fear can push prices too low while excitement can push them too high. People make mistakes, fashions come and go, bubbles form and panics happen. Relentlessly every day, millions of buyers and sellers continue adjusting, correcting and responding to new information.
Tomorrow, when you see a price tag, you won’t just see a number. You’ll be looking at millions of human decisions, frozen in time. All the decisions frozen into that price tag are the market telling you the truth. That price is a representation of everything that occurred before you looked at it, including taxes that the government is taking, any greed along the way, honest work and honest profit. Based on everything that has occurred the market has discovered a price and now you decide to accept it or reject it. The market collects everyone’s decision and based on that brutal truth it has no choice but to re-adjust once again.
First Principles
Markets discover value through millions of independent decisions.
Prices continuously adjust as people respond to changing information.
No individual knows everything, but together markets reveal far more than any one person can know.
Today’s Challenge
The next time you go shopping, stop at three different price tags.
Instead of asking, “Why is this so expensive?” Ask, “What thousands of decisions might have created this price?”
How many people, costs, choices and changing circumstances are hidden behind that single number?
Tomorrow’s Signal
Saving Creates Civilisation