Mr. Market is knocking. You don’t have to answer.

In 1949, Benjamin Graham – by then the well-established father of value investing – published The Intelligent Investor. This fantastic book remains every bit as relevant today, including the part about “Mr. Market.”

It’s a term I’ve used many times before, though not originally. I borrowed it from the best.

Graham introduced this figure by asking readers to imagine him as their rather eccentric business partner. Every day, Mr. Market tells you what he thinks your portion is worth. And every day, you’re allowed to buy into the company further or sell your share at the price he gives.

Sometimes, Mr. Market’s calculations seem completely reasonable. Other times, it’s like he lets his emotions take over. And whether the driving feelings are fear or greed, his estimates can get pretty ridiculous.

Graham’s analogy here is brilliant, not just in its assessment of Wall Street but also in its evaluation of your choices. Because you do have the choice to say no.

If Mr. Market stops by to offer you $70 for something you believe is really worth $100, you can buy it. If he offers you $150 for what you already own, you can sell it. Or if he tries to lowball you, you can simply close the door, knowing full well he’ll be right back on your doorstep tomorrow.

Moreover, you can keep your door closed for as long as you want or need to. That’s a much more powerful option than most people realize today.

I know it’s been nearly eight decades since Graham wrote about Mr. Market. And, my, how times have changed.

It’s not difficult to believe he would be outright astonished by what we trade. Cryptocurrency, exchange-traded funds (ETFs), internet stocks, data centers: It would all be foreign to him.

And how we trade it! In Graham’s day, investors would check the daily newspaper for stock updates. Or maybe they’d call their broker.

Today, I imagine brokers would be rather annoyed providing that kind of information. Why bother them when we can get it on multiple financial sites whenever we want it, down to the second?

I’d even go so far as to say we’re inundated with investment information in the 21st century. Platforms like Yahoo Finance and Google Finance also provide breaking news and assessments throughout the day. Plus, there are countless other sites you can visit for further updates and insights on every asset imaginable.

But what I don’t think Graham would be surprised one bit about is how susceptible investors are to the information we have. Technology can alter how we do things, but what we do and why we do them never changes.

When he said his contemporaries’ “primary cause of failure” was “they pay too much attention to what the stock market is doing currently,” he might as well have been speaking about us today.

He knew – as we should, too – that the stock market is supposed to be a tool toward success, not our dictator. We are not supposed to be at its beck and call.

We’re still supposed to have a life outside of constantly checking our portfolios… tracking tickers… reading headlines… and reacting to all of it far too often and far too quickly.

There’s a much better way of making money in the stock market if you only care to try.

Here’s what we need to understand: There’s a difference between price and value.

A big, big difference.

The stock market might be great at putting price tags on assets. But it can be absolutely dreadful at determining their actual worth, especially in the short term.

It takes more than a second’s glance to understand a company’s:

Once we know all of that and respect all of that – as in putting it first and foremost above fear, greed, or any other emotion Mr. Market might be feeling – we can make an informed estimate of a company’s real value.

Oftentimes, this kind of discipline requires us to accept another point that Graham taught: that investors should not be focused on buying stocks. They should be focused on buying businesses.

Which means they need to stop thinking like traders and start thinking like business owners.

Business owners don’t bail when volatility hits. They assess the situation and act accordingly.

Mr. Market too often treats volatility as if it’s the same thing as risk. Yet real risk is the possibility of permanently losing capital. Whereas volatility is just prices moving in significant ways.

For example, let’s say my analysis of one company puts it at $100 per share – even though Mr. Market wants $120. Within mere months, however, interest rates rise, prompting him to offer the same stock at $95. And still later that year, there’s a broader market selloff, so he shows up with a $75 offer.

The question a trader asks is, “How much lower will it fall?” as if price is the only consideration. The question a business owner asks is, “Did the company’s actual value change?”

If the answer is no, then he probably doesn’t sell, knowing that the price will doubtlessly change again going forward – this time in his favor.

Ultimately, Benjamin Graham’s “Mr. Market” isn't really a lesson about stocks. It's a lesson about human behavior and how it affects our finances.

You can have a Mensa-level IQ, for instance. But it’s not going to do you any good if you panic every time one of your portfolio picks declines.

A less intelligent individual will fare much, much better if he knows how to be patient, disciplined, and in control of his emotions. This isn’t always (or ever) easy when:

So the next time Mr. Market comes a ‘callin’, remember this: You don’t have to answer. And you certainly don’t need to answer yes.

You don’t have to sell just because he’s afraid or buy just because he’s elated. There’s no need to change your valuation assessments just because he changed his price.

By all means, study the business some more if that price went down. Make sure its fundamentals haven’t changed for the worse. Investigate what the drop is all about.

But do so with the full understanding that Mr. Market will be right back tomorrow with another quote.

And quite possibly another mood as well.

Happy SWAN investing,

Brad Thomas
Editor, The Wide Moat Daily