Mr. Market is the affectionate term for the general crazy reactions of the stock market as a whole. It is a term invented by master value investor Benjamin Graham, in his 1949 masterpiece, The Intelligent Investor.
Mister Market is an erratic, idiosyncratic personality, which reacts to market news with quick trades that oftentimes go against long-term reason. He is only thinking about the immediate moment, with no disregard for what price he is buying or selling.
Mr. Market lives by the herd mentality investing scheme and adopts the personal trading axiom “buy high, sell low.”
He often overreacts wildly to the smallest bit of data, and if he sees that others are selling, he is quick to sell and if it seems that others are buying, he is quick to buy.
Prices are often pushed to all-time highs by Mr. Market and brought to all-time lows as well. Via Mr. Market’s reactions – aka the majority of investors – the general markets are moved up and down which allows for great buying or selling opportunities for those who do not adhere to what the masses are doing.
Now, sometimes Mr. Market is justified in his pricing schemes, however, he rarely beats or exceeds the market returns as he is constantly selling out of great companies because he is worried about small bits of data coming out on a daily basis.
Be Different Than Mr. Market
As investors, we want to do the opposite of what Mr. Market is doing. We want our emotions to removed from the equation and approach investing with a clear and precise mindset.
We want to buy when he is selling and sell when he is buying. By doing this day-in and day-out, we are going directly against the herd mentality investing which Mister Market loves to exhibit.
Take one look at any great modern-day value investor, and many times you will see a buy and hold strategy readily apparent. The first investor that comes to mind for many individuals is Warren Buffet.
He has been a mastermind stock trader over the years with much success in the way of investment returns. What have been some of his guiding principles in stock investing?
- He views the companies that he buys in as a true ownership position and not just bits and bytes to be selling on a daily basis.
- He looks for stocks as he looks for his groceries; great deals at discounted prices.
- He buys into stock positions with the idea that if the market shut down tomorrow with no set date for reopening, he would be ok holding onto his equity positions indefinitely. In other words, he is unconcerned of what direction the market goes.
If you want to learn more about Buffett’s strategy – both on life and investing – check out the video below!
So the next time you see that the market as a whole is selling or buying, see if the sentiment is justified and if not, rest assured in the fact that you are getting a great deal due to erratic trades of Mr. Market.