Graham's metaphor for the stock market as an erratic business partner who offers to buy or sell his share at a different price every day — driven by emotion, not logic.
“The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.”
— Benjamin Graham
Deeper Explanation
Benjamin Graham introduced Mr. Market in The Intelligent Investor as a way of making the abstract mechanics of stock market behaviour concrete and psychologically manageable. Imagine, he said, that you own a share in a private business with a partner named Mr. Market. Every single day, without fail, Mr. Market shows up and offers either to buy your stake or sell you his — at a price he names. The critical detail is that Mr. Market is emotionally unstable. On some days, he is euphoric — convinced the business has never had better prospects — and his price is very high. On other days, he is despairing — certain that disaster is imminent — and his price is very low. He is always willing to transact at whatever price he quotes. He never minds being ignored. The lesson Graham drew from this parable is liberating. You are never obligated to trade with Mr. Market. His daily quote is merely an offer — one you can accept if it suits you, and ignore if it does not. When he is pessimistic and offers you a bargain, you buy. When he is euphoric and offers a price well above value, you sell. When he is somewhere in between, you do nothing. Most investors get this backwards. They treat Mr. Market's daily price not as an offer to be evaluated against intrinsic value, but as a verdict on their judgment. When the price falls, they feel they must have been wrong. When it rises, they feel validated. This is exactly the disposition that destroys investment returns. The right relationship with Mr. Market is one of detached opportunism: you understand that his offers are driven by mood, not reality, and you act only when mood diverges far enough from reality to offer a genuine opportunity.
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