Posted by: The Soaring Eagle | April 14, 2011

Value-based Investment: Mr. Market


Mr. Market

We’ve been using this term rather casually. Ben had used it in his book: “The Intelligent Investor” at several occasions.

I like to use metaphors. I find them easier to understand and to relate to, by so many people.

Imagine you are in the middle of the ocean, the Pacific for example. Your are the captain of a well-built ship. You’ve mastered the skill and the art of sailing such a vessel. You have a good deal of control over the ins and outs of that ship. However, do you control the weather? No one claims that, even the best of captains!

What you do, as an “Intelligent Captain”, is that you make sure that you understand the physics of the weather, and know the up-to-date weather forecast. Now you sail your ship, so that Mr. Weather is on your side; blowing your sails in the right direction, even during the harshest storms.

Got the idea? No one can control Mr. Market. It’s so moody, no one can even predict its next move for sure, ever. So, what can we do? We select our investments carefully, so that the ups and downs of Mr. Market’s moods do not affect us dramatically. We sometimes use those rather extreme variations to our benefit. We will see how, down the road.

For now, think of Mr. Market as the weather. Be prepared as much as you can. But don’t waste too much time trying to precisely predict its next move. Even worse, trying to time it.

When your investment strategy is based on solid principles, patience and discipline, Mr. Market’s current mood has little effect on the future of your portfolio.

Happy investing..

To be continued…

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