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6th May 2020 - Tracey Payne

Turnip Turmoil – a fun insight into outguessing markets and market timing

For a little light relief from the articles posted recently, I thought readers might enjoy the following commentary written by my 17 year old daughter. It still has an investment angle, but uses an amusing data cohort to get my points across.

Six weeks ago, just before the impending lockdown began my 11 year old brother and I decided to buy the much loved ‘Animal Crossing: New Horizons’ game. In this, players spend the majority of their time catching fish, shaking trees and shooting strange looking packages out of the sky which would be a welcome escape from the world of Covid-19; we did not think it would provide a valuable lesson in investing. 

The first few days on our new animal crossing island were spent foraging for sticks, stones and friends to help advance our island. Once we acquired the correct tools, we began catching insects, bugs and fish which we sold to two raccoon brothers ‘Timmy’ and ‘Tommy’ in exchange for ‘bells’. These ‘bells’ acted as a fictional currency with which my brother and I took out our very first mortgage on a house. 

About a week into our island adventure we had both incurred a heavy debt of 198,000 bells to ‘Tom Nook’, another raccoon who acts as the island manager. Even after regular fishing trips and growing several orchards, we couldn’t sell enough to pay this off. That’s when we discovered the Turnip Market, an opportunity to make money quickly enough to keep upgrading our houses. 

Every Sunday morning a boar named ‘Daisy Mae’ would visit our island, dragging around a small cart full to the brim with turnips for sale. Excited by this opportunity, my brother and I scrambled to buy as many as we could with our mere 60,000 bell savings. We’d read stories about turnips bought for 107 bells each being sold for as much as 600 bells and couldn’t wait to make a profit. You can’t resell bells on a Sunday, so we switched off our consoles until the following day. The price that you can sell turnips for changes at midday so we checked every morning and evening to see if we could make a profit.

Unfortunately, the prices were not as staggering as we had initially hoped. For the first few days, turnip prices were restricted to 50 bells and under, at least half the price that we’d bought them for, so we waited. At this point the animal crossing turnip industry had become a regular talking point at the dinner table and our investment director mother, Tracey Payne, offered us two pieces of advice on the matter over mashed potato and sausages.

Advice No. 1

“No one really knows what’s going to happen to the future price of turnips just like no one can predict with any certainty the future price of stocks and shares. I’d suggest you come up with a plan for paying off your mortgage, based around things you can control, and then stick with this long term.”

Advice No. 2

“The best technique with the short-term turnip market might be to buy and sell little amounts often to get an average of all prices offered. Trying to guess the best time to buy and sell all of your turnips is likely to end in disappointment”.

Not fully acknowledging what had just been said, after all we were the ones who had been playing on animal crossing for 3 weeks, my brother and I continued our strategy of waiting for the highest price to sell all of our turnips at once. So far unsatisfied with the daily prices and armed with 400 turnips, we waited until Saturday to sell. We had to sell that Saturday as otherwise our turnips would rot and become worthless. Hubris had got the better of us, we watched as the price for turnips fell from 55 bells to 47 over lunchtime and we had no choice but to sell each turnip for 60 bells less than we had bought them the Sunday before. It seemed we would remain in debt to a raccoon for another week and somewhat uncomfortably, might have to listen to our mothers advice for once!’

Being an investment director is sometimes like being a mother, both roles come with a huge sense of responsibility and a desire to pass on information gathered from years of experience to benefit others. Of course, what you can’t do is to get everyone to listen!

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author and does not represent a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Errors and omissions excepted.

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