Is Mr. Market still around? Is he still bipolar? You bet he is.

 M  R .   M A R  K  E T

Most of the time, the market is mostly accurate in pricing most stocks.  Millions of buyers and sellers haggling over price do a remarkably good job of valuing companies—on average. But sometimes, the price is not right; occasionally, it is very wrong indeed. And at such times, you need to understand Graham’s image of Mr. Market, probably the most brilliant metaphor ever created for explaining how stocks can become mispriced.

The manic-depressive Mr. Market does not always price stocks the way an appraiser or a private buyer would value a business. Instead, when stocks are going up, he happily pays more than their objective value; and, when they are going down, he is desperate to dump them for less than their true worth.  Is Mr. Market still around? Is he still bipolar? You bet he is

The Investor and Market Fluctuations: Price fluctuations have only one significant meaning for true investor (8)

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

• He must take cognizance of important price movements, for otherwise his judgment will have nothing to work on. 
• Conceivably they may give him a warning signal which he will do well to heed—this in plain English means that he is to sell his shares because the price has gone down, foreboding worse things to come. 
• In our view such signals are misleading at least as often as they are helpful. 

Basically, price fluctuations have only one significant meaning for the true investor. 

• They provide him with an opportunity to buy wisely when prices fall sharply and 
• to sell wisely when they advance a great deal. 
• At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies

The Investor and Market Fluctuations: Mr. Market Parable (7)

Mr.Market Parable.

Imagine that in some private business you own a small share that cost you $1,000. 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 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 $1,000 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.

You must think for yourself and not allow the market to direct you.

Be warned.  Do not confuse the real success of an investment with its mirror of success in the stock market .

• The fact that a stock price rises does not ensure that the underlying business is doing well or that the price increase is justified by a corresponding increase in underlying value. 
• Likewise, a price fall in and of itself does not necessarily reflect adverse business developments or value deterioration.
• I t is vitally important for investors to distinguish stock price fluctuations from underlying business reality. 
• If the general tendency is for buying to beget more buying and selling to precipitate more selling, investors must fight the tendency to capitulate to market forces. 

You cannot ignore the market - ignoring a source of investment opportunities would obviously be a mistake -but you must think for yourself and not allow the market to direct you. 

• Value in relation to price, not price alone, must determine your investment decisions. 
• If you look to Mr. Market as a creator of investment opportunities (where price departs from underlying value), you have the makings of a value investor.  
• If you insist on looking to Mr. Market for investment guidance, however, you are probably best advised to hire someone else to manage your money.