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…

Value-based Investment: Introduction

Before Benjamin Graham (1894-1976), investing had been restricted to a special few. People didn’t know that what those ‘special few’ had been doing was merely guess-work!

In order for an individual to invest in the stock market, she or he had to submit to an ‘expert’, who was supposed to know the game of investing: A stock broker, a money manager or a fund manager.

The ‘experts’ had formed an elite circle of influence. What happened within that circle was at best ambiguous to the public. It was not a fair game! Not based on logic and common sense.

What Graham did to stock investing was very similar to what Newton did to physics and astronomy. He’d transformed the practise from one of hype to an activity of research, analysis, logic, decision-making, and of course, risk taking

To be continued..