Mr.Market’sBipolarDisorder 5pose oneself to the contagion. Instead, use Mr. Market to your ad-
vantage.
Neither Graham’s Mr. Market nor this Q fever metaphor implies
anything about the psychology of market participants. Rational peo-
ple acting independently can produce irrational market results.
Many investors simply defer to experts or majority opinion. Following
the herd may seem rational and intelligent—until it stampedes
straight off the cliff.
SWINGS, BUBBLES, AND CRASHES
Price ticks drive the wild volatility that plagues contemporary stock
markets. Momentum traders and sector rotators are both victims and
transmitters of Q fever. The disease reaches epidemic proportions
when the crowd follows the “indelibly indicated trend,” in the sar-
castic words of Fred Schwed from his classic workWhere Are the
Customers’ Yachts?referring to the illusion that patterns predictably
persist.^2
Average stoc kprices swing by 50% every year, while underlying
business value is far more stable. Share turnover is enormous. The
number of shares traded compared to the total shares outstanding
spi ked from 42% to 78% on the New Yor kStoc kExchange between
1982 and 1999 and from 88% to 221% on the Nasdaq between 1990
and 1999.^3 Prices on particular stocks rise sharply and fall furiously
within days and weeks without any link to underlying business val-
ues.
Speculation rages, and the speed of price fluctuation has mul-
tiplied dramatically compared to previous decades. Market volatility
has increased roughly in proportion to the dramatic increase in in-
formation—both real and imagined—that is readily available. Get-
ting in before the rise and out before the fall has become the day
trader’s mantra, one that reveals not only the presence of Mr. Market
but the existence of his coconspirators by the thousands.
Roller coaster rides in stoc klevels have been known throughout
the history of organized market exchanges, but these rides took ma-
jor indexes either up or down together. A quite different trail was
blazed in the late 1990s and early 2000s as the Dow Jones average
of leading industrial companies went one way and the Nasdaq av-
erage of more technology-oriented or younger companies went an-
other.