Mr Market

Mr. Market is an analogy or fictional character that is intended to represent the behavior of the stock or investment markets. He was created by the great investor Benjamin Graham the father of securities analysis and value investing the 1949 book called The Intelligent Investor.

The basic idea behind this is a simple one he is a broker in businesses but he is also completely deranged. Everyday he comes to your door with a number of businesses for sale. The businesses are not rationally priced some are terribly undervalued and some are vastly overvalued. You have a choice of whether to buy them or not.

Some days he brings you tremendous bargains that can make you a lot of money. Other days he tries to peddle worthless paper at incredibly high prices. Sometimes he’ll even bring both at the same time. One day Mr. Market will try sell you the next Berkshire Hathaway, the next day he’ll be offering you the new Enron.

So What Does Mr. Market Represent 
Mr. Market represents the true nature of the market especially the stock market. By creating this metaphor Graham was trying to remind investors of two important points that most of us seem to forget sooner or later.

The first is that the stocks, ETFs, mutual funds etc being traded in the market represent actual businesses. What is being traded on Wall Street and elsewhere is not paper nor is it electronic data it is businesses. If the business that issues a stock is not making money the stock is not making money. If the business is worthless the stock will be worthless too.

The second is that the market is completely irrational. Graham called Mr. Market a neurotic the modern term for him would be psychopath or schizophrenic, either way he is completely crazy. No action that he takes is the least bit rational. Nor will it make any sense to anybody even he himself. Anybody that expects Mr. Market to behave in a rational way will be disappointed.

This also means that it is impossible to predict his behavior. It changes suddenly and completely for discernable reason. Any attempt to predict what actions he will take will fail because he is crazy.

Should We Trust Mr. Market? 
Benjamin Graham was not telling average people not to invest although he did recommend that average people put their savings in Treasury bonds rather than stocks. He was simply trying to warn people about the true nature of the investment markets.

The truth is that we should never trust him but we can take advantage of him. On some days he will try to sell you something that is extremely valuable for just a few pennies. It would be crazy not to take advantage of such an opportunity.

On other days he will try to charge you a fortune for something that is obviously worthless. A good way to think of Mr. Market would be as a crazy car dealer. One day he tries to sell you a Ferrari for a few hundred dollars it would be idiotic not to buy that. The next Mr. Market tries to sell you a rusted out Yugo for $10,000. Obviously it would be insane to take Mr. Market up on that offer yet many people will.

This brings us to the most important point about Mr. Market you are in a position to say no to him. Nobody has to accept his deals or give him their money. Even though he is crazy Mr. Market is not violent he is not pointing a gun at anybody’s head to make them buy. Instead he is simply trying to sell you something.

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