Mr. Market is a Bipolar Lunatic!!!

Dr. Jekyll and Mr. Market

Benjamin Graham famously wrote about Mr. Market as being bipolar in his book The Intelligent Investor. I’ve heard others talk about Mr. Market showing up at your front door every morning trying to sell assets to you.

Visualize....

This guy rings my doorbell every morning about the same time...7:30am. Today, this guy looks like he’s been up all night, still wearing yesterday’s clothes. His disposition seems fairly calm at first, but you can see as he says “Good Morning Sir... may I have a few moments of your time?” it’s obvious this guy is desperate.

It’s not always this way.

I think to myself he must be going through “a thing”. Early 2022 he would knock too, but his attitude was 180 degrees different, with almost a sense of arrogance, talking on his phone, cocky, not really paying attention to me at all!

Today he has 4 briefcases with different labels on each: “Stocks”, “Bonds”, “Real Estate”, and “Alternatives”. I ask him to come in the door and sit at the dining table. This guy needs to take a load off and rest for 10 minutes before he passes out.

I’m the Chief Compounding Officer(CCO) at Aviara Capital Investments. My core responsibility as an investor is to look at what Mr. Market is offering for sale and attempt to understand “real value”, or “intrinsic value”, in a world that’s been a little Sopranos crazy lately. In a world where bad economic data is good for markets and good economic data is bad. Things haven’t made much sense lately... or maybe it’s just me?

As a CCO my job is to compound at the highest risk adjusted rate possible, and to do that job you must purchase from Mr. Market at a price that creates what Graham referred to as a “margin of safety”.

It took me several decades to realize that a stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business with an underlying price that does not depend on its share price.

Mr. Market or “the Market” is like a pendulum that that forever swings between unsustainable optimism (which makes things too expensive) and unjustified pessimism (which makes things too cheap). And just like a pendulum spends very little time in the middle (equilibrium), the market spends less time in the middle and most of the time in optimism and pessimism.

In my invesor/FI Guy opinion the current “Mr. Market” looks like the one I’ve incuded with this blog. Be prepared to start buying from this guy. Entry is where we make a spread between our cost of capital and the asset’s return on investment (R.O.I). Recessions is where you want to double or triple down. When the spread vs. risk makes sense.

We will explore a few more rules of thumb on evaluating the intrinsic value of an asset vs what the market is currently paying in the next few blogs.

Best,

Derek

Derek Petersen

Disclaimer: I am a financial independence guy and a financial freedom hack. I am not a financial advisor, a CPA, or a broker of anything. I recommend discussing financial decisions and/or planning with the professionals.