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Mister Market (Psychogram)

Mister Market (Psychogram)

In the investment world, we were first introduced to Mr. Market by Benjamin Graham in his 1949 book, The Intelligent Investor. Graham’s mentee, Warren Buffett, still calls this book "by far the best book on investing ever written."

Further he states that "chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years. I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak." Chapter 8 is devoted to Mr. Market.

To summarize, Mr. Market is often identified as having human behavioral manic-depressive characteristics. He:

♦ Is emotional, euphoric, moody
♦ Is often irrational
♦ Offers transactions that are strictly optional
♦ Is there to serve you, not to guide you
♦ Is like a voting machine in the short run, but a weighing machine in the long run
♦ Will offer you a chance to buy low, and sell high
♦ Is frequently efficient…but not always

In the words of Graham, “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.”

Mr. Market comes and goes every day. And more importantly, he simply offers a price for your investments on a given day. If you don’t like it, don’t do anything. Most days, it is best to ignore him. Whether you choose to conduct business with Mr. Market on a given day is entirely at your own discretion.

The lens you choose to put on at this moment in time dictates how you feel. To a long-term investor, down markets present opportunities. Think about it – when the market drops, stocks go on sale relative to the prior week or prior month. The stock market is the only place where people actually dislike sales. The market is simply sending you a coupon to purchase things you already want with one caveat, they aren’t telling you when that sale is going to end.

Mr. Market can be crazy…absolutely crazy. And it is critically important to recognize the market moves just as fast in both directions. Quick rebounds often (not always) follow quick declines. If you miss it, you can’t go back in time and make up for it.

The feelings of uncertainty and anxiety that accompany volatile (down) markets are real and they can test our fortitude. But one always has  to consider that reacting to Mr. Market is a choice, and if you don’t like what he has to offer today, you can just ignore him.

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