X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Does Mr Market tell you where is he headed? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 20, 2011

    Does Mr Market tell you where is he headed?

    We completely agree with Ben Graham's description of Mr Market being a 'remarkably accommodating fellow'. Especially given the fact despite his 'incurable emotional problems' the gentleman most often gives clear indications as to where stock prices are headed. Mr Market's euphoric sentiments arise when he sees only the favorable factors affecting the business. The resultant high price that he agrees to pay for stocks builds up the risk in them. At other times, when he is depressed and can see nothing but trouble ahead he agrees to sell stocks at a huge discount creating opportunities in the market.

    Thus if one carefully takes cues from Mr Market's sentiments to judge where the stock prices are headed, chances of going wrong in investing decisions are very little. Moreover, Mr. Market has an endearing characteristic of being a loner. He doesn't mind being ignored. Hence choosing to react or not to react to his moods is a decision that is left to us.

    Indeed, if one plots stock valuations in the same way as Mr Market's sentiments, finding out where he is headed is rather predictable game.


    Take the Price to Earnings (P/E) multiple of the broader BSE 200 index for instance. A premium or discount to the average P/E multiple over the past 5 years is sufficient to spot the risk or the opportunity as the case may be. However, a word of caution here. Waiting for Mr Market to take you to a point where the risk or the opportunity is maximum can be a foolish decision. One must remember that he or she is not the only one following Mr Market's sentiments. Hence waiting for stock valuations to touch their peak before selling them or touch their bottom before buying is not advisable as it is nearly impossible to identify these till it is too late. For before you know it, other investors may have reacted Mr Market's sentiments causing it to change.

    Data source: BSE website


    But the catch here is that investors need to also pre-empt Mr Market's next move. Judging whether lower earnings prospects or dull macro scenario will make the gentleman cringe holds the key to your buying decisions. In the same way, answer the question - can bigger orders and lower interest rates make the man euphoric -before deciding when to sell your stock.

    We owe the basis of value investing to Graham's allegory of Mr Market. But investors cannot always hope for Mr Market's sentiments to help them with investing decisions. It is for them to keep their own emotions distinct and ensure that they do not overlook the facts that Mr Market has.

     

     

    Equitymaster requests your view! Post a comment on "Does Mr Market tell you where is he headed?". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Which Gods Will Bring Down the US Empire? (Vivek Kaul's Diary)

    Aug 17, 2017

    Mr Trump is in the White House and the gods are in their heavens; what's not to like?

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 17, 2017 (Close)

    MARKET STATS