Mr. Market
The market quotes you an emotional price every day; ignore him, and buy more when he's having a sale.
In One Sentence
Picture the market as a moody neighbor who knocks on your door every day with a price; whether you take it is up to you.
Why It Matters
When he's in a good mood, he names a sky-high price; when he's in a bad mood, he'll dump everything at bargain prices. You're free to ignore him, and he'll be back at your door tomorrow anyway. If your family invests a fixed amount every month, here's how to deal with him: on ordinary days, keep buying as usual; when he holds a clearance sale, use new income to pick up a little more; and when he names a sky-high price, you don't have to sell him your shares, either. What you need to guard against isn't his moodiness — it's becoming moody along with him.
One Number
CGM Focus, an American fund, made about 18% a year on average over the ten years to the end of 2009, yet its investors lost about 11% a year on average. Chasing it after it rose and running when it fell — that's being led around by Mr. Market (Morningstar · Chapter V).
In the Book
He appears only in Section 3 of Chapter V, "Buying Low," alongside the margin of safety and mean reversion, to show that a crash is an opportunity, not a threat.
Go Further
- Benjamin Graham He came up with this image.
- Margin of safety When Mr. Market is at his gloomiest, the margin of safety is at its widest.
- Fear and greed His moods are the crowd's fear and greed.
- Market thermometer The thermometer takes his temperature; it doesn't send buy or sell signals.
- Buying in crashes When he holds a clearance sale, add more from new income.