A second principle to keep in mind is that investors are normally seeking the investment that promises the highest return. In other words, they look for the investment that offers the highest regular income in the form of interest or dividends or the best chance that its value – or price – will increase over time.
And that brings us to the third principle: supply and demand of assets – gold, real estate, securities, fine wines … – are largely determined by investors’ expectations about the future development of the prices of these assets.
However, keep in mind that these expectations are not always realistic.
Sometimes the incorrect or too optimistic interpretation of information, rumors, myths… can trigger a real euphoria among investors and lead them to buy “because the others buy” (the famous “herd behavior”) which may push up prices for a specific asset excessively. This is called a speculative bubble.
This is why any investor is well advised to use common sense and ask himself if the prices required on the market for a particular good are reasonable. And always keep in mind the saying of the famous American investor Warren Buffet, mentioned above: “Price is what you pay. Value is what you get.”