Fool.com: Stocks, Stocks on the Range [Fribble] March 28, 2000

Fribble Stocks, Stocks on the Range

By bar2d2@gorge.net (Alice & Russ)
March 28, 2000

We've been learning a lot at The Motley Fool site, and in trying to assimilate it, we've come up with an analogy. Forgive us if we wax Western; it's a hazard of where and how we live!

Today, just as in the past, there are many factors that can affect the outcome of one's endeavors in the market, and indeed, one's financial future. People that lived in the 'Old West' raising cattle had to take them to market to realize their gains (just as we have to take our dollars to the brokerage). First the rancher had to gather his animals (clear up our credit card debt). Then quite often, several ranchers would join their herds together so their cooperative efforts would help ensure a greater chance for success for all (just as some of us band together in mutual or index funds).

The ranchers could, of course, take the animals to market themselves (buy individual stocks), but it was a lot of work and fraught with peril -- and who would mind their ranch (their job) while they were away on a months-long journey? So they usually hired a 'trail boss' (mutual/index fund manager). This person would be someone who had successfully made the journey before, and knew the terrain and possible hazards along the way. The trail boss might know a scout or two (analyst) who would reconnoiter ahead of the herd and recommend the best path. There was also a need to hire 'hands' (brokers); who knew how to ride horses and rope cattle. Some of them could ride or rope better than others; some had been on a 'drive' before; and some were simply a darn good cook! One thing they had in common: none of them would watch the herd with the same attention as the rancher who owned the cattle!

Along the way, a rancher knew he would lose a few head:

  • there could be accidents (like a Clinton-Blair press meeting), or

  • a leg-breaking badger hole (like a MicroStrategy accounting re-write), or

  • a sudden gunshot (like a hacker cyber-attack), or

  • in the middle of a peaceful night, a lightning strike (China, saber-rattling about Taiwan) or anything that caused a stampede that could harm steers and hands alike!

  • there weren't many 'bears' that would attack a cattle herd, but there were packs of wolves that would bring down the young, the weak, and the unwary.
Overall weather conditions could be out of your control (even Greenspan can't regulate everything!). There might be a drought and your cattle would lose weight on their journey (just as inflation can steal away the value of your dollar). There might be an early spring thaw in the mountains, and the rivers along the regular route would be too swollen to pass. (The Nasdaq has a quick run-up and you have to figure out whether to 'wade in' or wait for the level to subside.)

For the non-vigilant, cattle rustlers (like Penny Stock touters) could steal from you. Passing through Indian Territory (should we say Native American?), you might be required to pay a tribute... reminds us of the Internal Revenue Service!

Supposing your herd did get to market relatively intact, there were no guarantees of the price you'd receive when you were finally ready to sell. One thing for sure, the cattle ranchers knew better than to borrow someone else's steers and count on selling them for a profit (same risks as selling short, or even trading on margin).

Finally, in true capitalist fashion, some cattlemen would use their earnings to buy more land and increase the size of their next herd. And others would simply buy a bath, a beer, and anything else to grant them the comfort of the moment!

With tongues firmly planted in our cheeks,

Alice & Russ of the frogfarm....