Mr. Market Is Still Emotional… But He’s Not as Crazy

If you’re familiar with Warren Buffett and Ben Graham, then you likely know “Mr. Market”…

The mythic being came to life in 1949 in Chapter 8 of Graham’s classic book The Intelligent Investor. And he has matured over the past 72 years through Buffett’s repeated references.

One thing is clear… Mr. Market is emotionally volatile.

One day, he’s wildly optimistic and offers exorbitant prices as he tries to buy our stocks. The next day, he’s down in the dumps and wants to sell everything at dirt-cheap prices.

In order to be a successful long-term investor, though, you must be stable and thoughtful. That’s why investing legends Graham and Buffett believe you must ignore Mr. Market’s short-term emotional swings.

But as I’ll explain today, times have changed…

We’re now a long way from the late 1940s. Mr. Market still might be as emotionally volatile as ever. However, he’s not as crazy as he once was…

You see, in Mr. Market’s heyday, an investor needed to look in the fine-print stock tables of newspapers like the Wall Street Journal for updated prices. If he needed to know before the next morning’s newspaper, he would have to call his human broker and ask for a quote.

If the investor subscribed, he could find additional information in the monthly Standard & Poor’s Stock Guide. He could also call a company and ask for the latest shareholders’ report… If he was lucky, it might get sent quicker than third-class mail. Or he could go to a local library or a U.S. Securities and Exchange Commission regional office armed with a suitcase full of coins for the copy machines to do it himself.

No wonder Mr. Market became an emotional wreck… Poor access to the critical information needed for investing hard-earned money could drive anybody over the edge.

But these days, on the eve of 2022, Mr. Market’s world no longer exists. The challenge is the exact opposite today… We now face too much information coming at us too quickly.

As a result, Mr. Market’s emotional state is no better or worse than ours today. With so much information available at an instant through the Internet, we all must constantly battle our emotions to make decisions… We’re fighting through the “noise” alongside Mr. Market.

Remember, though, that stock prices are set by supply and demand. So even if we’re emotionally on level footing with Mr. Market these days, it matters what he thinks for a different reason… He’s a gigantic source of supply and demand in the market.

That’s why we must still take time to understand why Mr. Market acts as he does. And studying charts – also known as “technical analysis” – is a huge part of this process…

A chart is a record of what Mr. Market did at various times in the past. It’s the language through which he talks to us.

For example, if you see a “gap up” (when a stock’s first trade of the day is at a price noticeably higher than the highest price achieved the prior day), it means Mr. Market is saying that something important just happened… If you don’t know what that is, find out.

And if a stock plummets after an unfavorable earnings report, Mr. Market is telling us that he has reasons to believe weaker fundamentals persist… If you don’t know why, find out.

If you can’t figure out why a stock is acting a certain way, find something else to buy. If you already own the mystery stock, sell it and invest in something you understand.

The stock market is full of opportunities… No rule says you need to buy specific ones.

Not knowing is dangerous for investors. But in the end, so is willful ignorance because you just assume Mr. Market is still crazy after all these years.

We’re no longer living in Mr. Market’s heyday, when finding critical information about stocks was nearly impossible. Now, thanks to the Internet and other technological advancements, you can quickly find what you’re looking for.

So learn to use what Mr. Market is telling you… He’s not as crazy as he used to be. And he might even cue you into something important that you didn’t already know.

Good investing,

Marc Gerstein

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