When we're too into something, sometimes we lose sight of wat is actually happening or how we could interpret it in an more happy way than self-torturing our own self.
When Benjamin Graham (Warren's mentor) was teaching Warren about the shortsightedness of the stock market, he asked Warren to imagine that he owned and operated a wonderful and stable little business with an equal partner by the name Mr. Market.
Mr. Market had an interesting personality trait that some days allowed him to see only the wonderful things about the business. This, of course, made him wildy enthusiastic about the world and the business's prospects. On tother days he counldn't see past the negative aspects of the business, which, of course, made him overlyu pessimistic about the world and the immediate future of the business.
Mr. Market also had another quirk. Every morning he tried to sell you his interest in the business. On days he was wildly enthusiastic about the immediate future of the business, he asked for a high selling price. On doom-and-gloom days, when he was overly pessimisxtic about the immediate future of the business, he quoted you a low selling price hoping that you would be foolish enough to take the trouble company off his hands.
One other thing. Mr. Market dosen't mind if you don't pay any attention to him. He shows up to work every day - rain, sleet or snow - ready and willing to sell you his half of the business, the price depending entirely on his mood. You are free to ignore him or take up on his offer. Regardless of what you do, he will be back tomorrow with a new quote.
If you think that the long-term prospects for the business are good and would like to own the entire business, when do you take Mr. Market up on his offer? When he is wildly enthusiatic and quoting you a really high price? Or when he feels pessimistic and quotes you a very low price? Obviously you buy when Mr. Market is feeling pessimistic about the immediate future of the business, because that's when you would get the best price.
Graham added one more twist. He taught Warren that Mr. Market was tehre to benefit him, not to guide him. You should be interested only in the price that Mr. Market is quoting you, not in his thoughts on what the business is worth. In fact, listening to his erratic thinking could be financially disastrous to you. Either you will become overly enthusiatic about the business and pay too much for it, or you become overly pessimistic and miss taking advantage of Mr. Market's insanely low selling price.
Warren says that, to this day, he still likes to imagine himself being in business with Mr. Market. To his delight he has found that Mr. Market still has his eye on the short term and is still manic-depressive about what businesses are worth.
posted by ikaira @ 4:23 PM,
