Benjamin Graham, the father of value investing, likens the stock market to be a moody gentleman by the name of Mr Market. Every day, Mr Market, depending on how he feels, offers to either buy our interest in a company or sell us his.
The prices offered by Mr Market might be crazily high or low, or they might be at a fair value. One of the nicest things about Mr Market is that he doesn’t mind being ignored. He’ll come right back tomorrow with another offer. So, we are in the driver’s seat. If Mr Market offers to buy our stake in a company for a ridiculously high price, we may choose to take his money. If he offers to sell his share for an absurdly low price, we can take advantage of the bargain. If, on the other hand, he wants to sell for too high a price or buy too low a price, we can always ignore him. After all, he wouldn’t get angry with us and he’ll be back tomorrow with another offer.
The point I’m trying to drive across is that if we know the actual value of a business, we only need to buy or sell when doing so is to our benefit. The stock market exists to serve us and not to guide us.
4 thoughts on “Mr Market”
The problem is the value of a business keeps on changing as the market keeps on changing, right?
Yes it does. It can be an opportunity if the value of the business rises. If it drops and the fundamentals changes drastically, we just sell the stock for a profit.
When the fundamentals change drastically, I think whether you make or lose depends on when you buy the stock at what % of safety of margin, etc…
Yes, you are absolutely right.