Volatile Markets: A Quiz

“ A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?

These questions, of course, answer themselves

Question: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Answer: Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Warren Buffet made this point in the 1997 Berkshire Hathaway annual report. A decade on and we nothing changes: Markets are volatile.

Markets go up and down but as buyers we should celebrate the falls and buy on sale. It's true that the finance industry is one place that many do not rush to purchase on sale.

End of Month Stock Roundup

• Following the Federal Reserve slashing of interest rates by a half-percentage point U.S. stocks showed gains on Wednesday, sending indexes up more than 1 percent -- boosted by hopes that the economy would avert a recession.
• New Zealand's sharemarket started out well yesterday but ended up negatively.
• Despite a positive start to the day, Australian shares started a decline at lunch time and continued to edge lower to the end of the session yesterday.
  
• Ahead of the US Federal Reserve interest rate decision Japanese shares lost momentum amid gloomy earnings reports.

A Gold Commodity

As the dollar declines in value commodities, such as gold and platinum, rise to record highs. Prices for cotton and corn are on the rise. Gold is always seen as a good hedge to cash and there is increasing demand in countries such as China and India which may help to support the price of gold.

So what is a commodity? According to Lamonts a commodity is a tangible asset that has a market value. The term normally applies to raw material and foodstuffs and is traded on various exchanges around the world.