How are you today, mr. Market?

The uncertainty surrounding the outbreak of the coronavirus and its human and financial consequences is on all of our minds right now. Global stocks have fallen a lot and very quickly. The markets are fluctuating wildly.

The situation made me think of the message from the “The Intelligent Investor”, a book written by Benjamin Graham, “the father of value investing” (as he has often been called). The book was published in 1949, but still is relevant and contains words of wisdom for any investor. Perhaps the most famous investor of all time – Warren Buffett – studied under Benjamin Graham, and often credits Graham as a major influence shaping him as an investor.

“The Intelligent Investor” would perhaps not pass as modern financial theory, but I still think the book has something to teach us in these testing times.

In the book, Graham introduces a fictitious person he calls mr. Market. You and Mr. Market are business partners and together you own a company.

Every day your business partner will tell you a price he believes the company to be worth and offer you an opportunity to buy or sell the company’s shares for that price. Often the price he suggests will be a reasonable projection of the underlying value, but sometimes mr. Market’s feelings and emotions will take the upper hand. One moment he can be exuberant and will buy your shares for what seems to you a high price, next he can gloomy and would sell to you for a price you deem too low according to your estimates of the true value.

Graham points out that if you are a sound and sensible investor you will not let mr. Market’s daily price announcements influence your assessment of the underlying value. You will make up your own mind on the value based on the company’s operations and the financial balance. In other words, you have to do that job yourself! You won’t know the underlying value of the company by following mr. Market’s daily price announcements, which ultimately will be up or down based on his mood.