Back in August 2024 famed investor Howard Marks wrote a memo titled “Mr. Market Miscalculates”. The Mr. Market referred to by Marks’ is the one Ben Graham made famous in the Chapter 8 we are discussing today. Mr. Market is the central character in a parable that I’ll paraphrase here:
“Ben Graham and Warren Buffett have talked about a charming, seductive manic-depressive gentleman named Mr. Market. Every day he shows up on your doorstep offering to do business with you. When he's manic, he'll offer to buy your stocks or sell you his for absurdly inflated prices. When he's depressed, his prices go ridiculously low. The mistake most people make is answering the door just because Mr. Market knocks. You don't have to let him in. Why should you buy just because he's excited? Why should you sell just because he's down in the dumps? A long-term investor shouldn't care about market prices.” - Charles D. Ellis
The parable of Mr. Market is a lesson, not so much to ignore the daily market madness of the ticker, but to only engage with it when you are using it to serve your own interests. Inherent in that is that you have to know what your interests are and you have to be willing and able to ignore everything else that Mr. Market will bring your way. Further Graham says that “A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.”
So what did Zweig have to say about this chapter?
Commenting on Commentary on Chapter 8
To Zweig this is somewhat simple, just because Mr. Market shows you prices everyday, “You do not have to trade with him just because he constantly begs you to.” The goal is to turn Mr. Market into someone who serves your interests, which could simply be buying at fair prices and selling at euphoric prices when offered, and it could be accomplished in ways like automating decisions to buy and rebalance. Those aren’t necessarily the only ways to make the market serve your interest, but serve as good examples.
It’s a lesson about moving from a mindset of anticipating and predicting the market (the hallmarks of speculation) to one focusing on controlling what you can control. Zweig lists several things an intelligent investor can control:
Your brokerage costs
Your ownership costs, through expense ratios
Your expectations for future returns
Your risk, through asset allocation and any associated rebalancing
Your tax bill, by not churning your account
Zweig reminds us that investing is not a competition, it’s about reaching your goals as it relates to your own financial needs, but cautions that getting caught up in comparison games is human nature. It is easy to say that the daily market fluctuations won’t matter over a 10 or 20 or longer year investment horizon because they won’t, but to actually act accordingly is a different matter. We crave control and acting gives us a sense of control.
For Zweig the remedy to our biological instincts is to “dollar-cost average, rebalance, and sign an investment contract.” with an end towards reaching your long-term financial goals without getting caught up in the arms of the manic depressive Mr. Market.
“The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts.” - Marcus Aurelius
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