The Psychology of Money 181good companies at bargain prices. Pessimism, he says, is “the most com-
moncauseoflowprices....We want to do business in such an environ-
ment, not because we like pessimism but because we like the prices it
produces. It’s optimism that is the enemy of the rational buyer.”^5
Whether an investor feels optimistic or pessimistic is a statement of
what that investor thinks about the future. Forecasting what is going to
happen next is tricky at best, and downright foolish when optimism (or
pessimism) is based more on emotion than on research. Buffett, who once
remarked that “the only value of stock forecasters is to make fortune
tellers look good,” makes no attempt to anticipate the periods in which
the market is likely to go up or down.^6 Instead, he keeps an eye on the
general emotional tenor of the overall market, and acts accordingly. “We
simply attempt,” he explains, “to be fearful when others are greedy and to
be greedy only when others are fearful.”^7
INTRODUCING MR. MARKET
To show his students how powerfully emotions are tied to stock mar-
ket f luctuations, and to help them recognize the folly of succumbing
to emotion, Graham created an allegorical character he named “Mr.
Market.” Buffett has frequently shared the story of Mr. Market with
Berkshire’s shareholders.
Imagine that you and Mr. Market are partners in a private business.
Each day without fail, Mr. Market quotes a price at which he is willing
to either buy your interest or sell you his. The business that you both
own is fortunate to have stable economic characteristics, but Mr. Mar-
ket’s quotes are anything but. For you see, Mr. Market is emotionally
unstable. Some days, he is cheerful and enormously optimistic, and can
only see brighter days ahead. On these days, he offers a very high price
for shares in your business. At other times, Mr. Market is discouraged
and terribly pessimistic; seeing nothing but trouble ahead, he quotes a
very low price for your shares in the business.
Mr. Market has another endearing characteristic, Graham said: He
does not mind being snubbed. If Mr. Market’s quotes are ignored, he
will be back again tomorrow with a new quote. Graham warned his
students that it is Mr. Market’s pocketbook, not his wisdom, that is use-
ful. If Mr. Market shows up in a foolish mood, you are free to ignore