Mr. Market is a metaphor used in Benjamin Graham’s The Intelligent Investor to describe how a wise investor choses to participate in stock markets based upon fundamental value rather than on the current mood or the direction.
You should always act as if you are buying a private business with your investing process. Buy investments you would feel happy to own if the market shut down tomorrow.
The story of Mr. Market
Graham’s parable goes something like this. Think of yourself as owning a share in a business in partners with others. One of your partners, say Mr Market, is somewhat of a neurotic who on any given day will offer to buy your share or sell you his at a specific price. His moods can fluctuate anywhere between incredible optimism and overwhelming depression. One day he will nominate a higher price to buy or sell, the next day he might increase it, lower it, or even appear uninterested in whether he buys or sells.
The point that Graham makes is that Mr Market’s judgment is formed more by mood swings that by rational thought and that this gives the wise investor buying and selling opportunities. If Mr Market’s price is unreasonably high, then wise investors have the opportunity to sell. On the other hand, if it is unreasonably low, then they have the opportunity to buy.
The enterprising investor’s job is to buy from Mr. Market when he is depressed and pesimistic and to sell to him when he is filled with optimism. That’s right the opposite. When you buy an investment in an excellent business at a good price, you can choose to only participate with Mr. Market when his opinions are divergent from yours and it benefits you. That is the core principle of value investment. The process of investment is to act as a business man and purchases businesses in a business like mannerism.
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