behaviour
Mr Market
The rule
The market is a moody business partner. Every day he knocks and offers you a price. Some days he is thrilled, some days he is scared. You may ignore him. You never have to obey him.
Where it flips
The picture can also fool you into thinking every low price is a bargain. Sometimes the low price means Mr Market has correctly smelled real trouble the company is hiding. His mood is mostly noise, but now and then the mood is right.
Graham asks you to picture the market as a moody partner, Mr Market. Every day he knocks on your door and names a price for your share. Some days he is thrilled and quotes it far too high. Other days he is scared and quotes it far too low. His mood is not a judgement on the company. It is only his mood. His gift to you is that you can deal on his best offers and ignore the rest. The daily number on an NSE or BSE screen is exactly this: a running offer, not a measure of worth. Once a beginner sees the price as one man's changing offer, and not the truth, the fear of a red screen fades away.
A worked example
A share you understand is quoted at ₹500 in a calm month, ₹720 in a frenzy, and ₹360 in a panic. The business barely changed across all three. Mr Market's mood swung. The company did not. [illustrative]
How to spot it
- ·the price treated as an offer, not a fact
- ·no urge to act just because the screen moved
- ·the business judged apart from today's quote
Benjamin Graham · The Intelligent Investor