Mr. Market

At times like these, with the markets swinging violently up and down more than 1,000 points per day on the Dow, it's a good time to get to know your business partner a little better.

What do I mean about your business partner? Well in his 1949 investing classic The Intelligent Investor, Benjamin Graham introduced us to Mr. Market. Graham asks us to imagine that we are one of the two owners of a business, along with a partner called Mr. Market. This partner frequently offers to sell his share of the business or to buy your share. This partner is what today would be called manic-depressive, with his estimate of the business's value going from very pessimistic to wildly optimistic. You are always free to decline your partner's offer, since he will soon come back with an entirely different offer.

Regardless of your style of investing, momentum, value, buy and hold, etc. (or if you are so new you don't have a style yet), Mr. Market is always there; and there is no doubt that he is manic-depressive. A couple weeks ago he was optimistic and the markets were rising. Today he is extraordinarily pessimistic. The overall markets are now in Bear territory and many stocks are already down 30-60% in just a couple of weeks!

But remember this, once all of the Coronavirus passes, Mr. Market will change his tune. He will be happy once again. Eventually he'll be wildly optimistic. How do we know this - just look at history. We recovered from the 2008-09 market crash, the 2000-02 market crash, the 1987 market crash, the 1973-74 bear market, the 1929 crash and many more.

Your crazy business partner is unhappy now and that gives you an opportunity. If you are prepared you can start to buy some stocks once the market has turned. In the not too distant future, Mr. Market will give you an opportunity to sell for a tidy profit.