Who is Mr. Market?
Who is Mr. Market? I guess you have seen me using this term (with title cap
) frequently in my articles. I wasn’t the creator of this term; neither is Warren Buffet but his teacher Professor Benjamin Graham. Benjamin Graham was also known as the “Father of Security Analysis” and he created a legend – an investment legend that is the second richest man on earth and a philanthropist. In 1934, Graham and David Dodd together wrote a book titled “Security Analysis” that introduced a whole new way of investment approach. In Security Analysis, he proposed a clear definition of investment that was distinguished from speculation. It read, "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."
Graham described the whole market as a single entity known as
Mr. Market. According to him, Mr. Market has emotional problem. When Mr. Market is in the mood, he will name a very high price for fear that you may snap up his interest and rob him of his gain. When he is depressed, he will quote an extremely low price for fear that you might unload your interest to him.
And as a follower of Warren Buffet, I also adopted the idea of managing “Mr. Market” so as to invest successfully. And it makes all sense by treating the whole market as a single entity. Whenever people ask me about how to beat numerous stocks experts, I told them not to look at it in terms of the number of investors, but as one single entity. It is almost impossible for you to beat millions of investors and experts but when you look at it as a single entity, it’s easier.
After investing for many years, I decided to describe this entity as “Ms Market” instead.
About Ms Market
Ms Market is a beautiful lady who is available and always available. Ms Market is highly attractive to many men, and women too. Just like any other woman, Ms Market is sentimental, emotional and temperamental. Guys would know that when your girl is not in the mood, she would be unreasonable and irrational. Similarly, when Ms Market is not in the mood, she will depress the price no matter what. When she is in the mood, she will push the price up so that you have no chance to compete with her.
So how most investors behave? Some experts try to forecast Ms. Market’s mood by doing some trend analysis. And then they come up with moving average, candlestick etc. Sometime they predicted correctly and make big money out of it. Other times they were wrong and Ms Market wipes them out. Nobody can be bigger and richer than Ms Market. Another group simply follow Ms Market’s mood. When Ms Market pressed down prices, they sold it to Ms Market at even lower price and vice versa. This is the worst and hopeless lot and most of them won’t make it. The remaining group will totally disregard Ms Market’s mood and make independent decision. The value investors are this remaining lot.
How is Ms Market Lately?
How is Ms Market lately? The obvious answer is that she is emotionally unstable. Nowadays it is more difficult to predict her mood than before. One of my friend’s colleagues wanted to know my opinion on the stock market as a whole, i.e. the mood of Ms Market. I refused to provide any opinion. Then they kept asking and wanted just two words from me. Finally I gave in and gave them my two words, “don’t know”. Basically I really don’t know and I don’t need to know.
Should We Hold An Investment For Very Long-term?
If you have been reading books or articles on Warren Buffet’s investment horizon, it will definitely tell you of investing in a company perpetually. I had friends who asked me if we should really invest for “as long as possible” and disregard the business cycle. Following Warren Buffet’s investment approach the answer is definitely yes. But we faced one problem – we are not Warren Buffet. We must understand that as a retail investor, we will never become or even come close to Warren Buffett. This is because Warren Buffett doesn’t buy 10 lots or even hundred lots in a company; he buys a controlling stake. This means that Berkshire Hathaway will be able to consolidate or recognise the profit from these investment regardless of stock price movement. In fact, Warren Buffett decides who becomes the CEO of a takeover company. Obviously as a retail investor we can’t.
We know that Ms Market always disintegrate a company’s intrinsic value with its share price. In bad times such as recession, while Berkshire Hathaway continue to report good profit from these investments (through consolidation), retail investors had endure with their portfolio losses and hoping that the Ms Market will recover soon. And during good times, the investing public, following the mood of Ms Market, push up share prices. Many will make money while the bubble is expanding. But still, Warren Buffett is indifferent; he had already recognised profits from his good investments for many years and many more years to come. When finally the bubble burst, you will get burnt but still, Warren Buffett is consolidating good profit from his wonderful investments.
“So follow Ms Market also cannot, follow Warren Buffett’s investment horizon also cannot, what should I do?”
In my opinion, which you may disagree, this is what we (retail investors) should do. Firstly, we definitely never follow the mood of Ms Market especially when she is throwing tantrum without considering the economic fundamental. When she is depressed, we will buy from her wonderful companies at deep discount. When she is in the mood and pushing up price, we should sell it to her and locked in our profits. But when the economic fundamental collapse, we will divorce Ms Market totally as she will be depressed for a period of time.
“So in normal time, we should take opposite direction against Ms Market, but how to know whether the economic fundamental is collapsing?”
Finally you asked an extremely difficult question. Unfortunately, nobody has a definite answer otherwise he would probably be richer than Warren Buffett. I mean only God know if US is entering into a recession this year or next year, or not at all. The best thing that any investor should do and can do is to be updated on local and global economic report. Find a group of friends with same interest and skills and share opinion freely. From there, it is easier to form certain objective conclusion. This will help you to determine your investment horizon.
Who is Mr. Market? I guess you have seen me using this term (with title cap
) frequently in my articles. I wasn’t the creator of this term; neither is Warren Buffet but his teacher Professor Benjamin Graham. Benjamin Graham was also known as the “Father of Security Analysis” and he created a legend – an investment legend that is the second richest man on earth and a philanthropist. In 1934, Graham and David Dodd together wrote a book titled “Security Analysis” that introduced a whole new way of investment approach. In Security Analysis, he proposed a clear definition of investment that was distinguished from speculation. It read, "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."Graham described the whole market as a single entity known as
Mr. Market. According to him, Mr. Market has emotional problem. When Mr. Market is in the mood, he will name a very high price for fear that you may snap up his interest and rob him of his gain. When he is depressed, he will quote an extremely low price for fear that you might unload your interest to him.And as a follower of Warren Buffet, I also adopted the idea of managing “Mr. Market” so as to invest successfully. And it makes all sense by treating the whole market as a single entity. Whenever people ask me about how to beat numerous stocks experts, I told them not to look at it in terms of the number of investors, but as one single entity. It is almost impossible for you to beat millions of investors and experts but when you look at it as a single entity, it’s easier.
After investing for many years, I decided to describe this entity as “Ms Market” instead.
About Ms Market
Ms Market is a beautiful lady who is available and always available. Ms Market is highly attractive to many men, and women too. Just like any other woman, Ms Market is sentimental, emotional and temperamental. Guys would know that when your girl is not in the mood, she would be unreasonable and irrational. Similarly, when Ms Market is not in the mood, she will depress the price no matter what. When she is in the mood, she will push the price up so that you have no chance to compete with her.
So how most investors behave? Some experts try to forecast Ms. Market’s mood by doing some trend analysis. And then they come up with moving average, candlestick etc. Sometime they predicted correctly and make big money out of it. Other times they were wrong and Ms Market wipes them out. Nobody can be bigger and richer than Ms Market. Another group simply follow Ms Market’s mood. When Ms Market pressed down prices, they sold it to Ms Market at even lower price and vice versa. This is the worst and hopeless lot and most of them won’t make it. The remaining group will totally disregard Ms Market’s mood and make independent decision. The value investors are this remaining lot.
How is Ms Market Lately?
How is Ms Market lately? The obvious answer is that she is emotionally unstable. Nowadays it is more difficult to predict her mood than before. One of my friend’s colleagues wanted to know my opinion on the stock market as a whole, i.e. the mood of Ms Market. I refused to provide any opinion. Then they kept asking and wanted just two words from me. Finally I gave in and gave them my two words, “don’t know”. Basically I really don’t know and I don’t need to know.
Should We Hold An Investment For Very Long-term?
If you have been reading books or articles on Warren Buffet’s investment horizon, it will definitely tell you of investing in a company perpetually. I had friends who asked me if we should really invest for “as long as possible” and disregard the business cycle. Following Warren Buffet’s investment approach the answer is definitely yes. But we faced one problem – we are not Warren Buffet. We must understand that as a retail investor, we will never become or even come close to Warren Buffett. This is because Warren Buffett doesn’t buy 10 lots or even hundred lots in a company; he buys a controlling stake. This means that Berkshire Hathaway will be able to consolidate or recognise the profit from these investment regardless of stock price movement. In fact, Warren Buffett decides who becomes the CEO of a takeover company. Obviously as a retail investor we can’t.
We know that Ms Market always disintegrate a company’s intrinsic value with its share price. In bad times such as recession, while Berkshire Hathaway continue to report good profit from these investments (through consolidation), retail investors had endure with their portfolio losses and hoping that the Ms Market will recover soon. And during good times, the investing public, following the mood of Ms Market, push up share prices. Many will make money while the bubble is expanding. But still, Warren Buffett is indifferent; he had already recognised profits from his good investments for many years and many more years to come. When finally the bubble burst, you will get burnt but still, Warren Buffett is consolidating good profit from his wonderful investments.
“So follow Ms Market also cannot, follow Warren Buffett’s investment horizon also cannot, what should I do?”
In my opinion, which you may disagree, this is what we (retail investors) should do. Firstly, we definitely never follow the mood of Ms Market especially when she is throwing tantrum without considering the economic fundamental. When she is depressed, we will buy from her wonderful companies at deep discount. When she is in the mood and pushing up price, we should sell it to her and locked in our profits. But when the economic fundamental collapse, we will divorce Ms Market totally as she will be depressed for a period of time.
“So in normal time, we should take opposite direction against Ms Market, but how to know whether the economic fundamental is collapsing?”
Finally you asked an extremely difficult question. Unfortunately, nobody has a definite answer otherwise he would probably be richer than Warren Buffett. I mean only God know if US is entering into a recession this year or next year, or not at all. The best thing that any investor should do and can do is to be updated on local and global economic report. Find a group of friends with same interest and skills and share opinion freely. From there, it is easier to form certain objective conclusion. This will help you to determine your investment horizon.
