|
Investment Planning |
Staying Rational When Mr. Market is Anything But
The following allegory comes from the great investor Benjamin Graham, as told by his student Warren Buffet. It's a reminder not to let stock prices and media hype get in the way of rational, disciplined investing.
Imagine stock market quotations come from a remarkably flexible fellow named Mr. Market. Every day, Mr. Market appears and names a price at which he will either buy your shares or sell you his. Trouble is, the poor fellow has incurable emotional problems. When he's euphoric, he sees only the favorable factors and names a very high price so that he may keep his immanent gains. At other times, he is depressed and, seeing nothing but trouble ahead, names a very low price.
Fortunately, Mr. Market does not mind being ignored or taken advantage of. If you don't like his quote today, he'll be back with a new one tomorrow. Mr. Market is there to serve you, not to guide you. It is his wallet, not his wisdom, you will find useful. In fact, it's disastrous to fall under his influence, because he is not rational.
Back in the real world, we make investment decisions based on valuations, not stock prices. The stock market will continue to be influenced by fear and greed, depending upon external factors such as interest rates, commodity prices, political issues, etc. As we have successfully done in the past, we will continue to look for opportunities to increase our clients' wealth.
Source: Warren Buffet's Letter to Berkshire Shareholders, 1987.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.