FP Article 13
Who Is Mr. Market?
by Rajen Devadason
you were a prudent investor or a sensible
businessman, you would not let Mr. Market's
daily communication determine your view of the
value of your interest in the enterprise.
greatest stock picker of all time is
While many of us
know his name because he's long been
the second richest man on our
planet, few are as familiar with the
name of his mentor - Benjamin
Graham was a
towering genius who pretty much
single handedly raised the once
arcane study of stock prices to
respectability by laying a solid
foundation of valuation principles
that hinged on facts and not
Yet that's not to say Graham didn't recognise
the existence of emotional overreactions on the
part of most stock market punters. Graham was
wise in many ways.
Nonetheless, it seems unlikely
when his seminal book Security Analysis
was published in 1934, while America was still
in the grip of the Great Depression, that Graham
fully understood the far-reaching impact his
masterpiece would have upon generations of
fundamental investors. Another outstanding book
Graham wrote later in his life was The
Despite those important works, he
may well be most famous for a metaphorical
figure he conjured up for use in his classes on
investment science at New York City's Columbia
University. That teaching device was christened
Mr. Market by Graham.
This is an article on Benjamin
Graham's Mr. Market metaphor for the
stock market. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
This allegorical figure was a powerful teaching
device because it allowed Graham to guide his
students - among them the 20-year-old Warren
Buffett who entered Columbia in 1950 - to an
almost tangible visualisation of the ludicrous
mis-pricing extremes the stock market sometimes
Modern students of investment will quickly
realise that those who believe in the
applicability of Mr. Market in our capital
arenas stand diametrically opposed to hardcore
proponents of the Efficient Market Theory.
Personally, I believe Graham's
approach is the wiser one to adhere to - if
you're a patient retail investor who doesn't
need to worry about the short-term knee-jerk
reactions of institutional players who often
suffer from a bad case of 'lemming-itis'.
The best way to understand who
Mr. Market is would be to imagine him the way
Graham portrayed him to his students:
As an equal partner in a business you own with
Unfortunately, your partner is a
manic depressive! That means he suffers from
rather extreme (and decidedly unpredictable)
mood swings. The more politically correct way of
referring to this condition today would be to
say he suffers from bipolar disorder.
I'm not too concerned about
political correctness, so let's just call a
spade a spade! Mr. Market is an over-reactive
sap who has extreme mood swings!
Each morning when he walks
through the door of your jointly owned business
you never know if he's going to wax eloquent
about how wonderful the world is and quickly
offer to buy out your share at an incredibly
high price, or if he's going to drag himself
into your office utterly convinced the world is
about to end... so you might as well buy out his
share for a pittance.
Graham taught his students a
Mr. Market is not smart, but he is ever so rich!
If you're currently still
developing your personal money mind and need a
framework to help guide your long-term
investment decisions, you could do a whole lot
worse than researching Graham's wisdom further.
If that's what you'd like to do,
those book titles I mentioned earlier would be a
great place to begin your study of the man and
his ideas: Security Analysis and
The Intelligent Investor.
A word of warning, though, you
might want to begin with the later book first.
Security Analysis can be tough
going. It is worth wading through though...
Happy hunting, reading, studying,
thinking, learning and ultimately, I hope,
© Rajen Devadason