The Mr Market Metaphor At the starting of the classic Intelligent Investor book by Benjamin Graham (who was also Warren Buffett's professor), the author makes a metaphor that is key to understanding the intelligent investor mindset. He makes the following example: you own a piece of a company and everyday there’s a guy that comes to your door called Mr Market. This person is quite bipolar and everyday he gives you a price at which you can buy more shares in the company or sell yours. So how does the Intelligent Investor take advantage of this? Since Mr Market is guided by his mood and not by rationality he’ll offer prices that are far from real value. So one day he’ll feel quite negative and offer you low prices. So what are you going to do? You’re going to take advantage of that moment and buy more from him. Another day he’ll feel excited and he’ll offer very high prices, way higher than actual value. So how does The Intelligent investor take advantage of this situation? He’ll sell to Mr Market and take advantage of the unjustified optimism. This is just a metaphor and its sounds too far from reality but the point that many times events like these happened. I’ll give an example: in 2017 the biotech company Bioptix Inc all of a sudden changed its name into Riot Blockchain in the middle of the cryptocurrencies boom. As soon as this change was made the company's stock grew rapidly from around $4 per share to 25 and even surpassed the $28 dollars benchmark even though it didn’t have anything to do with blockchain, bitcoin etc… This happened because of the hype around the new technology. Some of these things happened even in the early stages of the internet when companies used to put “e-“ at the start of the company’s name or “.com” at the end to see the company’s stock appreciate.
Video credit: https://youtu.be/epPQlluPQcg
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