The Story of Mr. Market

Geoff Cook - CFP, CHAIP

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Alot of people lose a lot of money investing. Many times the reason is because they let Mr. Market take advantage of them...

This story was written by father of value investing Benjamin Graham in his classic book "The Intelligent Investor" originally published in 1949. Many key concepts in investing are timeless. As investors we often get to emotionally involved when investing, and we can become our worst enemies. Mr. Market is still very alive today, and the majority of people let him get in their heads, and make silly decisions. Allow this example to offer a different perspective on how the market works.

The Story of Mr. Market

Imagine that in some private business you own a small share that cost you $1000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out, or to sell you an additional interest on that basis.

Sometimes his idea of value appears to plausible and justified by business developments and prospects as you know them. Often on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1000 interest in the enterprise?

Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.

The true investor is in that very position when he owns a listed common stock. He can take advantage of the daily market price or leave it alone, as dictated by his own judgment and inclination.

Benjamin Graham - The Intelligent Investor

When dealing in financial matters, you are urged to consult an advisor for legal, tax or investment advice. Every effort has been made to present information in a clear, exacting manner. However neither the publisher nor the authors can be held responsible for any losses incurred due to the actions of any individual as the result of this post or any errors or omissions contained herein.

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