The story of Mr Stock Market (part3)

Imagine that you and Mr Market are partners in a private business. Every day, without fail, Mr Market quotes a price at which he is willing to either buy your shares or sell you his..

The business you both own is fortunate to have stable economic characteristics but Mr Market’s quotes are anything but irrational. Mr Market is emotionally unstable. Some days he is cheerful and can only see brighter days ahead. On these days, he quotes a very high price for shares in your business. At other times, Mr Market is discouraged and seeing nothing but trouble ahead, quotes a low price.

Mr Market has another endearing characteristic. He does not mind being ignored. If Mr Market’s quotes are ignored, he will be back again tomorrow with a new quote. If Mr Market shows up in a foolish mood, you are free to ignore him or take advantage of him, but it will be disastrous if you fall under his influence.

Investors are encourage to become familiar with behavioural finance, the place where finance intersects with psychology…