Benjamin Graham, the father of value investing, introduced the idea of Mr. Market to illustrate the way investors make decisions in 1949.
Essentially, Mr. Market is the typical investor who will offer to buy and sell shares on any given day at a variety of prices based on his feeling rather than by rational investment criteria.
A wise investor is the anti-thesis of Mr. Market. A wise investor is a rational investor which uses the emotional decision-making of Mr. Market as an opportunity to find advantageous buying and selling prices. A wise investor makes decision based on research and individual opinion rather than market sentiment or momentum.
Graham says “Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful.”
A recent article in Money Magazine by Bill Fleckenstein titled, “Why Mr. Market seems so moody” discusses why over the last decade “Mr. Market has essentially gone blind.”
The piece speculates that the concept of Mr. Market has become even more prescient since the year 2000 due to the Federal Reserve printing endless amounts of money over this period, and the ease of quantitative modeling from enhanced technology contributing to undue trade volume in the market. As a result, the market reacts to news that previously would have been already accounted for in the stock price.
The article points specifically to the price drop in Freddie Mac and Fannie Mae after it was released that the two would be delisted from the New York stock exchange. The companies were worthless at the time of this news, yet still the stock prices dropped 70% following the release.
Third River’s research team adheres to the tenets of Benjamin Graham and value investing by seeking equities that are mispriced or that the market has completely overlooked. In the portfolio manager’s letter on the following page, we address how the current market is advantageous to Third River Capital’s investing style. Similarly, in an attempt to capitalize on Mr. Market, the team looks to proprietary research and always focuses on the long-term value of any security in the portfolio.
The article can be found in its entirety at moneycentral.msn.com.
