Warren Buffett has offered a lot of timeless wisdom to investors over the years. Considering the recent turmoil in Cyprus, now is a good time to review a fellow named Mr. Market.
The Oracle of Omaha and chief executive officer of Berkshire Hathaway (NYSE:BRKA) (NYSE:BRKB) makes regular appearances on television, but his annual letters to shareholders still provide the biggest bang for your buck. In the 1987 letter, Buffett introduces readers to Mr. Market, a character that came into Buffett’s life from his teacher and the father of value investing, Benjamin Graham. Mr. Market is the mental attitude towards market fluctuations. He is reliable in the sense that he appears daily to provide market quotations. However, his mood is anything but reliable.
If Mr. Market was a real person, he would have a prescription for every bipolar pill under the sun, and it still wouldn’t be enough.
Buffett explains, “The poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.”