4 ATaleofTwoMarkets
Exchange monitor the extremes, imposing “circuit breakers” that
shut the market down when it threatens to slip into a bout of de-
pression (a sell-off) or raising the requirements for margin accounts,
particularly those of day traders.
Yet no cure is in sight. Mr. Market, in Ben Graham’s terms,
denies its manic depression.^1 It does this in numerous studies ex-
tolling how “rational” it is. It does it in countless conversations and
publications referring to its “efficiency.” Reams of “beta books” are
compiled in the belief that its gyrations simply and accurately reflect
precisely the measurable ris kthat stoc ks pose for investors. Abstract
advice to diversify portfolios is sold as the only way to minimize the
rational ris kthat this efficient system manageably presents. Denial
prevents cure.
Take Ben Graham’s Mr. Market a diagnostic step deeper. Mali-
cious microorganisms called rickettsia (named for Dr. Howard T.
Ricketts, 1871–1910) cause diseases such as typhus. From the Greek
word for “stupor,” signifying a state of insensibility and mental con-
fusion, typhus is characterized by bouts of depression and delirium.
It is transmitted by bloodsucking parasites called ticks. These para-
sites transmit a similar disease called Q fever.
To avoid Q fever, those venturing into tick-infested forests pre-
pare themselves. Hats, gloves, long sleeves, and pants are the dress
code. If bitten, prudent forest denizens remove the parasite with
tweezers, wash the bite, and apply rubbing alcohol, ice, and calamine
lotion. They survive to enjoy the woods.
Fools in the tick-ridden forest go bare, leaving exposed their skin
and, most daringly, their heads. After they find a tick, fear drives
them to irrational action, such as burning the tic kinstead of tweez-
ing it out. The kings and queens of fooldom then venture gleefully
on their forest expedition, giddily unaware that they are infected with
Q fever—until depression and delirium set in.
In the stock market forest, the ticks of price quotes infect the
unprepared fools in the same way and with similar results. Trader
obsession with price quotations spreads the Q fever epidemic, adding
gas to the fire of Mr. Market’s manic depression.
When venturing into the stoc kmar ket, defend yourself just as
you would when hiking in the forest: armed to fight the wealth-
sucking parasite of the Q fever price tick. Ben Graham and Warren
Buffett prescribe the same course for dealing with Mr. Market. They
advise that just as it is foolish not to recognize his symptoms or
diagnose his disease, it is equally foolish to play into them or ex-