Markets do a remarkable job of allocating resources, and financial markets allocate a specific resource: financial capital. A classic economic story helps illustrate this concept and explains that investors would be well served in pursuing an investment strategy that harnesses the extraordinary collective power of market prices.
Leonard Read’s story of the production of a pencil provides a glimpse of the incredibly complex of markets and how prices are formed, what type of information they contain and how they are formed. The story makes it clear that no single individual possesses enough ability or the know-how to create a pencil on their own but rather that the pencil’s miraculous production is a result of the collective input and effort of countless motivated human beings. In the end , the power of markets benefits all of us.
Market Prices are the unifying force that enables millions of people to coordinate their actions efficiently.
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