Saturday Serendipity
Quote,Mental Model, Interesting find.
Hi there!
Reading time: About 6 minutes
Quote
"We know a lot more what is wrong than what is right, or, phrased another way, 'negative knowledge' (what is wrong, what does not work) is more robust to error than positive knowledge (what is right, what works)."~ Nassim Taleb in Antifragility
Mental Model
Mr. Market
"Mr. Market" is a metaphor introduced by Benjamin Graham, the father of value investing, in his book "The Intelligent Investor." Mr. Market represents the volatility of the stock market, offering investment opportunities at fluctuating prices. Some days he's happy and offers high prices, while on other days he's dejected and offers bargain prices. The key lesson is not to be swayed by Mr. Market's mood but to evaluate the inherent value of the investment.
In life
From Mr. Market we can learn a lot for ourselves. Life always presents us opportunities where we can sacrifice a short term thing that will make us happy for some time and choose a long term way which will cause some suffering in the start but give a greater reward in the future. The stock market and life both are a game where we should practice deferred gratification. Imagine a Mr. Market type of person is offering you bad deals.
Take reading for instance. Everyone knows that reading helps you gain knowledge which will go ahead and help you in the future. But most people get distracted and prefer to get cheap dopamine and get short term pleasure which turns into regret after it is over. In this scenario, the temptations of short term pleasure are Mr. Market telling you to waste your time.
You can use this model to emulate good behaviour like delayed gratification, ignoring peer pressure, not being emotional in everything, etc.
In Sports
This can apply to us in sports as well. In cricket or any sport we can think that the opinions of others (who have no expertise) can be considered as Mr. Market. These people tell you bad things to bring you down when your performance is bad and tell you good things when you play really well. This is something we have to ignore completely. We cannot take outside pressure and let them bring us down when we are performing bad. We should self evaluate and work hard to improving the performance.
Speaking about a team now since cricket is a team sport. We should focus on the long term process and ignore Mr. Market in the short term. We can take a few losses on the way as long as there is improvement which is going to lead to the team winning when it actually matters.
In investing
The introduction is an easy enough understanding but who is better than Buffett to explain this concept.
“In the 1987 letter to Berkshire Hathaway shareholders, Buffett unfolds the concept for us.
Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, 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.
Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?
The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.
Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”
Source: Farnam Street
Interesting find
That’s it!
Enjoy the weekend!
👏 Amazing !!