The strange arithmetic of a thing getting cheaper

There is a small test you can run on yourself, and it costs nothing. Picture the coffee you buy most mornings, the exact one, and imagine that tomorrow it costs half what it does today. You would feel a quiet pleasure. The same money that bought one cup now buys two. Nobody walking out of that shop would say they had lost something. Now picture instead that a share you own, in a business you chose with care and still believe in, falls by half overnight, with nothing in the news to explain it. The feeling is not pleasure. It sits much closer to fear, and the first instinct of most people, myself included on a bad day, is to be rid of the thing before it drops any further.

This is the strangest habit of the investing mind. In almost every other corner of life we understand that a lower price on something we want is good news. We wait for the sale. We feel clever when we catch one. Only in markets does the logic turn over, so that the cheaper a thing we already wanted becomes, the less we seem to want it, and the dearer it grows, the safer it feels to own.

Why should that be? Part of it is that a price is not only a number, it is a verdict, the sum of what a very large crowd currently thinks. When the number falls, it feels as though the crowd knows something you do not, and standing against a crowd is one of the most uncomfortable things a person can do. We are social creatures long before we are investors. A rising price flatters us. It tells us we were right, and that other people agree, and agreement feels like safety even when it is only agreement.

The trouble is that a crowd is not the same thing as a fact. The coffee is the same coffee at half the price. A good business is, more often than people allow, the same business on the morning its share price has fallen, assuming nothing real has changed underneath. The number moved. The thing did not. Holding both of those in your head at once, the moving number and the steady thing, is most of the work, and it is quieter and far duller than the films would have you believe.

I am not going to tell you what to buy or when, and I would be wary of anyone who offered to. That is not what this is. All I will say is that the flip is worth noticing in yourself, because once you have seen it you cannot quite unsee it. The next time a falling price fills you with the urge to act, you might pause for the length of one breath and ask whether you would feel the same way about the coffee. Sometimes the answer will still be sell, and for good reasons. But the pause is where the temperament lives, and temperament, in the end, is almost the whole of it.

Why a lower price can feel like bad news is part of a bigger question in Price Is Not a Promise: what are you actually buying, and what is the price not telling you?