Economist and known as father of value investing, Benjamin Graham (1894-1976) has referred to a imaginary person as Mr. Market while teaching his philosophy of investing in his classic book “The Intelligent Investor”.
He suggested to look at the market as a business partner who offer buy you out or sell you his interest in a company. He referred to this imaginary person as Mr. Market.
According to him regardless of current valuation of securities, Mr. Market sometimes proposed prices that made sense, and who at other times proposed prices that were off the mark. You as an investor have the power to accept or reject Mr. Market’s offer.
Mr. Market is an allegory created by him to illustrate the need of investors to make rational decisions in regard to their investment activities instead of allowing emotion to play a deciding role.
Mr Market analogy suggests that the stock market is not always efficient but prone to being moody and irrational. Mr. Market analogy creates the stock market as a moody partner who occasionally offers irrational prices to buy and sell stocks.
As per his philosophy, if Mr Market is offering irrationally low prices in a quality company, you might buy. If Mr. Market offers you an irrationally high price for a position you hold as a long term investment, you might sell.
