MEET MR. MARKET—YOUR SERVANT, NOT YOUR GUIDE
“Mr. Market” was a character invented by Ben Graham to illuminate his students’ minds regarding market behavior. The stock market should be viewed as an emotionally disturbed business partner, Graham said.39 This partner, Mr. Market, shows up each day offering a price at which he will buy your share of the business or sell you his share. No matter how wild his offer is or how often you reject it, Mr. Market returns with a new offer the next day and each day thereafter. Buffett says the moral of the story is this: Mr. Market is your servant, not your guide.
In March 1989, as the stock market soared, Buffett wrote:
“We have no idea how long the excesses will last, nor do we know what will change the attitudes of the government, lender, and buyer that fuel them. But we know that the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”
“When I worked for Graham-Newman, I asked Ben Graham, who then was my boss, about that. He just shrugged and replied that the market always eventually does. He was right: In the short run, [the market is] a voting machine; in the long run, it’s a weighing machine.”
“The fact that people will be full of greed, fear, or folly is predictable. The sequence is not predictable.”
“The market, like the Lord, helps those who help themselves.”
IGNORE MR. MARKET’S MOODS
“Charlie and I never have an opinion on the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.”
“The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses.”
“If we find a company we like, the level of the market will not really impact our decisions. We will decide company by company. We spend essentially no time thinking about macroeconomic factors. In other words, if somebody handed us a prediction by the most revered intellectual on the subject, with figures for unemployment or interest rates or whatever it might be for the next two years, we would not pay any attention to it. We simply try to focus on businesses that we think we understand and where we like the price and management. If we see anything that relates to what’s going to happen in Congress, we don’t even read it. We just don’t think it’s helpful to have a view on these matters.”
“[John Maynard] Keynes essentially said, Don’t try to figure out what the market is doing. Figure out a business you understand, and concentrate.”
“For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.”
“The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”
