Saturday, November 11, 2006
Mr Market, a manic-depressive frictional character coined by Benjamin Graham long ago to describe the mental attitude toward market fluctuations that is recognized by followers of Ben to be the most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable and strongly rooted, Mr. Market's quotations will be anything but. For the poor fellow has incurable emotional problem. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high price to buy your interest because he fears that you will snap up his interest and rob him of any imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price since he is terrified that you will unload your interest on him causing him to sell his stake even lower.
Mr. Market has another endearing characteristic. He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior is, the better it is for you.
But, like "Cinderella at the ball", you must heed one warning or everything will turn into "pumpkin and mice": Mr. Market is there to serve you, not to instruct or guide you. It is his pocketbook, not his wisdom that you will find it useful. If he shows up someday in a particularly foolish mood, you are free to either ignore him or to take advantage of him. However, it will be disastrous if you fall under his influence.
In case if you aren't sure that you understand and can value your business far better than Mr. Market, you don't belong in the game. Like they say "you are only good if you know the game, if not, you are giving a whole lot of advantage to others who are." And just like in the game of Poker, the iron rule is "if you've been in the game for 30 minutes and you don't know who the patsy is, you are the patsy."