DEFINITION of Mr. Market
Used as an allegory, Mr. Market is an imaginary investor devised by Benjamin Graham and introduced in his 1949 book, The Intelligent Investor. In the book, Mr. Market is a hypothetical investor who is driven by panic, euphoria and apathy (on any given day), and approaches his investing as a reaction to his mood, rather than through fundamental (or technical) analysis. Modern interpretations would describe Mr. Market as manic-depressive, randomly swinging from bouts of optimism to moods of pessimism.
BREAKING DOWN Mr. Market
Investor and author Benjamin Graham invented Mr. Market as a clever means of illustrating the need for investors to make rational decisions in regard to their investment activities instead of allowing emotions to play a deciding role. Mr. Market teaches that although prices fluctuate, it is important to look at the big picture (fundamentals) rather than reacting to temporary emotional responses. Graham is also well-known for his most successful student, multibillion-dollar value investor Warren Buffett.
Greed and fear are now well-accepted hallmarks of advanced capital market systems. The herd behavior of these markets and the individuals populating them can at times gravitate to certain stereotypes. Mr. Market is one such archetype.
Legendary investor Warren Buffet, an ardent disciple of Benjamin Graham, is a frequent student of the book, The Intelligent Investor, particularly chapter 8 where Graham describes Mr. Market. Buffet's even gone on to consider the book the best book on investing ever written.
Stylistically, two other popular finance novels along these lines are The Confidence Man by Herman Melville, as well as The Money Game by Adam Smith, or George Goodman, who used Adam Smith as a pseudonym. The Confidence Man by Melville, who also wrote Moby Dick, used a written style best described as cultural satire and allegory, which confronted themes of identity, economic materialism, irony and cynicism.