Do not listen to Mr. Market

Mr. Market is an invention of the famous investor Benjamin Graham, who was the first proponent of value investing. Graham used an imaginary investor called Mr. Market, a very obliging fellow who turns up every day willing to buy and sell any number of shares in any company. You as an investor can trade with Mr. Market or ignore him completely, he will not be offended and will be back the following day to quote another price. He represents the stock market and has some serious psychic problems. Often the price quoted by Mr. Market seems plausible, but most of the time it is ridiculous. Sometimes he is very depressed, everything goes downwards and and his prices are low. But then his mood changes and suddenly he gets very enthusiastic and everything is alright again, prices rise.

Markets are irrational

As pointed out in our article about Benjamin Graham’s margin of safety, markets are irrational. Wise investors take advantage of this fact. If Mr. Market’s price is unreasonably high, then wise investors have the opportunity to sell. On the other hand, if it is unreasonably low, then you have the opportunity to buy a good company for a cheap price. Wise investors should always know the real value of an investment. You should buy and sell accordingly and not allowing Mr. Market to make a fool of you by offering you wrong prices.

Trust Mr. Value and make own decisions

In contrast, there is also Mr. Value. This guy is quite boring most of the time. He is the one working hard on the fundamentals and improves his company’s value every day. Mr. Value represents the economy and he is the one who really built it. Listen to him, not to Mr. Market.
A lot of investors are under the influence of Mr. Market. They look up there stocks everyday, are shocked when the price goes 5% down and buy like crazy when prices went up for a few months. Do not listen to Mr. Market anymore and make your own decisions based on fundamentals and the real value of the investment.