Investorial

Warren Buffett’s mentor, Benjamin Graham, introduced to the world one of the best investment analogy in Mr. Market. Mr. Market can be manic depressant today and a incorrigible optimist the next day - an extreme Jekyll and Hyde. Here is a description of the concept of Mr. Market [excerpt from About.com]

Imagine you are partners in a private business with a man named Mr. Market. Each day, he comes to your office or home and offers to buy your interest in the company or sell you his [the choice is yours]. The catch is, Mr. Market is an emotional wreck. At times, he suffers from excessive highs and at others, suicidal lows. When he is on one of his manic highs, his offering price for the business is high as well, because everything in his world at the time is cheery. His outlook for the company is wonderful, so he is only willing to sell you his stake in the company at a premium. At other times, his mood goes south and all he sees is a dismal future for the company. In fact, he is so concerned, he is willing to sell you his part of the company for far less than it is worth. All the while, the underlying value of the company may not have changed - just Mr. Market’s mood.

The best part of this entire arrangement: you are free to ignore him if you don’t like his price. The next day, he’ll show up at your door with a new one. For your interest, the more manic-depressive he is, the more opportunity you will have to take advantage of him [don't worry, he doesn't have feelings or mind being taken advantage of.] As long as you have a strong conviction of what the company is really worth, you will be able to look at Mr. Market’s offers and reject or accept them… the choice is yours.

Well, Mr. Market’s moods were certainly swinging wildly during hurricane Katrina and hurricane Rita. Yes, the hurricane did impact the operations and profit outlooks of many companies, but do you believe that the majority of the companies in the market will remember the effect of Katrina and Rita 10 years from now? Mr. Market certainly did on those days. I remember flipping the channels through CNBC, and true to the American media ways, the entire day was dedicated to covering a hurricane on a business news network! It is amazing how the media hype machine works to really affect the investors’ psyche. My advice as a value investor - don’t watch CNBC!

They say that hurricanes will be more and more common in the future due to global warming and the warm ocean waters. Does this mean that every year, the markets will swing wildly during the hurricane seasons? A value investor’s dream would include taking advantage of such mass hysteria. You cannot control how the market feels, but you can certainly be the master of your own domain!

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