Mr. Market
Warren Buffett · 1987
"The stock market should be viewed as a manic-depressive business partner whose daily price quotes exist entirely to serve you, not to inform or guide your estimate of a business's intrinsic value."
Imagine you co-own a private business with a partner named Mr. Market, who shows up at your door every single day offering to buy your half or sell you his. Most days his mood swings from euphoric — naming absurdly high prices — to depressed, offering to sell for pennies. The business itself hasn't changed; only his mood has. Warren Buffett's point, building on his mentor Benjamin Graham: you're never obligated to trade with him. His daily quote is an offer you can take or ignore, not a verdict on what your business is actually worth.
Buffett popularized this allegory in his 1987 shareholder letter. The defining mechanic is that Mr. Market's daily quotations exist strictly for your convenience and potential exploitation — never for instruction. The trap for any allocator, whether in public equities, real estate, or venture capital, is falling under his psychological influence rather than ruthlessly exploiting his pocketbook. The moment daily price swings are allowed to dictate your own rigorous estimate of intrinsic value, disaster is close behind. Wall Street operates on the premise that price fluctuations carry deep informational weight — an illusion reinforced by academic theories of perfectly efficient markets. Buffett rejects that premise entirely.
What is the primary purpose of Mr. Market's daily price quotations, according to Warren Buffett's framework?
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The explanation above is written with AI assistance. These are the originals — go to them to check it.
- Chairman's Letter — 1987Berkshire Hathaway
- Mr. Market (Benjamin Graham)Farnam Street
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