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Weathervanes, Pigeons, and the Simple Secret to Investing Success
Your beliefs and investment thesis matter
Stock prices should reflect the present value of expected cash flows. Expectations of the amount of those cash flows constantly changes based on new information such as shifting economic conditions, emerging industry factors, or company-specific news, and so stock prices are constantly fluctuating. So, how might investors profit? A couple of potential ways are either to have unique information sources, or quicker access to information than anyone else. Which leads us back a couple of centuries, to weathervanes and pigeons.
The Bank of England’s Weather Vane
In 1805, a wind dial was installed in the Court Room of the Bank of England’s building on Threadneedle Street in London that connected to a weathervane on top of the building. The Court Room was where the Bank’s directors met, in part to make decisions related to credit and the supply of money. At the time, London was a major and growing port, and much commercial activity was tied to the shipping industry.
Favorable winds from the east allowed ships to enter the port. However, unfavorable winds from the west meant that ships would be held up beyond the port, perhaps for a day or two. This would impact the demand or supply of money…
