Source: Federal Reserve Bank of St. Louis, data as at 01 May 2020
Mr. Market: An expert in assessing the future
Mr. Market was introduced by Benjamin Graham in his book “The Intelligent Investor” published in 1949. Graham is often referred to as the “father of value investing” and was the teacher of Warren Buffet at Columbia University.
Mr. Market is always a step ahead of the economy, as he prices in future economic developments. Therefore, he reacts positively to news on government stimulus, low interest rates and other central bank actions, as well as progress on developing a vaccine against the COVID-19 virus, because all of these are positive for economies and future corporate profits. Therefore, it is fair to expect economic developments to become positive in the not too distant future. The big questions such as “when?” and “by how much?” may have different answers from what Mr. Market currently prices in, as Mr. Market cannot assess known unknowns. , equally, nor can anyone else. Mr. Market is also influenced by broad investor opinion and sentiment, as well as excess liquidity.
However, doubting whether Mr. Market is right and betting against him takes exceptional skill and expertise to successfully assess vast amounts of data. Many famous investment voices from Graham to Buffet, Bogle to Fama advise investors against trying to time the market, just as we advised our clients only three months ago not to give in to fear and sell equities. We now caution them not to follow feelings of “missing out” and buy into the recent rally, proactively increasing equity exposure. Instead, following Mr. Market within your current strategy should be the better approach, versus hoping to be lucky.
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