Mr. Market

Definition

Graham personifies the stock market as a partner in a private business, "Mr. Market," who shows up every day offering to buy your stake or sell you more of his, at a price that shifts with his mood rather than the business's fortunes. "Sometimes his idea of value appears plausible... Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him." Because he is your servant, not your guide, you owe him no obedience: you may trade with him when his price is absurdly generous in either direction, and ignore him the rest of the time, forming your own view of value from the business's actual reports.

In the Book

The parable closes Chapter 8's argument about a real 1938 case: an A.&P. shareholder who watched the stock's quoted price fall well below what the company was earning, and had to decide whether that quotation, or his own judgment of the underlying business, defined his loss. Graham generalizes from there — a listed stock's daily quotation gives an owner options (he can sell at that price if he wants) that an unlisted private holding lacks, but it imposes nothing: "it does not impose the current quotation on an investor who prefers to take his idea of value from some other source." The chapter's summary reduces the investor/speculator line to exactly this: the speculator's primary interest is anticipating market moves, the investor's is acquiring suitable securities at suitable prices, treating price swings only as opportunities to buy low or sell high, never as verdicts to be obeyed.

Why It Matters

The parable separates the source offering you a price from the authority to set value, which is a distinction useful anywhere a noisy, moody, occasionally irrational counterparty (a market, a client, public opinion, a review score) publishes a number about something you actually understand better than they do at that moment. It gives permission to disagree with a live quotation without denying that the quotation exists or that it can occasionally be exploited.