Monday, August 24, 2009

Bespoke on the Bull

Generally, I do not spend any time thinking about markets -- bull, bear, or whatever. My focus is on buying shares of great businesses at the right price. To allow growth in intrinsic value of the businesses themselves over time to do the heavy lifting instead of some special ability to trade or time the market.

I've always found Ben Graham's Mr. Market allegory to be useful. To me, it's as relevant as ever.

Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'? - Warren Buffett in the 1987 Berkshire Hathaway Shareholder Letter

It's a simple but useful idea. Mr. Market experiences extreme mood swings and, as a result, often wants to sell or buy businesses well above or below intrinsic value.

"The market is a psychotic, drunk, manic-depressive selling 4,000 companies every day. In one year, the high will double the low. These businesses are no more volatile than a farm or an apartment block [whose values do not swing so wildly]." - Warren Buffett at Wharton*

So not a new idea but still just as useful today as ever if you are a long-term investor. Certainly more useful than the myriad technical approaches that are so popular (traders probably have a different view...I can't speak to that).

Having said that, Bespoke Investment Group does provide some great statistics on markets for those that are more interested in this stuff than I. Here is one of their posts from this morning comparing the current bull market to past ones going back to the 1920's.


* Based upon notes that were taken at a 2006 Wharton meeting.

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