Mr. Market is an allegory created by investor Benjamin Graham.
Since its introduction in Graham's 1949 book The Intelligent
Investor, it has been cited many times to explain that the stock
market tends to fluctuate, and that it is usually best to ignore
these fluctuations when determining whether to buy or sell stocks.
Graham instead believes that it is important to focus on whether
the stock valuation of a company is reasonable after calculating
its value through fundamental analysis.
Graham's favorite allegory is that of Mr. Market, an obliging
fellow who turns up every day at the share holder's door offering
to buy or sell his shares at a different price. Often, the price
quoted by Mr. Market seems plausible, but sometimes it is
ridiculous. The investor is free to either agree with his quoted
price and trade with him, or ignore him completely. Mr. Market
doesn't mind this, and will be back the following day to quote
another price.
The point of this anecdote is that the investor should not
regard the whims of Mr. Market as a determining factor in the value
of the shares the investor owns. He should profit from market folly
rather than participate in it. The investor is advised to
concentrate on the real life performance of his companies and
receiving dividends, rather than be too concerned with Mr. Market's
often irrational behavior.
The Intelligent Investor by Benjamin Graham, first published in
1949, is a widely acclaimed book on value investing, an investment
approach Graham began teaching at Columbia Business School in 1928
and subsequently refined with David Dodd. Famous investor Warren
Buffett described it as "by far the best book on investing ever
written",[1] a sentiment echoed by other Graham disciples such as
Irving Kahn and Walter Schloss.