The ability of Mr. Market to contradict perception held by market participants, who themselves constitute it, continues to be a great mystery. Ever since the emergence of financial markets, this elusive trait of Mr. Market has continuously caught investors on the wrong foot and, in the process, cost them billions.
This has been made possible by the fact that crowd, which is much influenced by fear and greed, continues to make the same mistake again and again. Also, the fact that the brunt dealt by such blows to one generation is lost on the younger generation, does not help the cause.
As an investor, our goal is to try to ensure that we do not end up committing the same mistake. Following the advice of Santayana, who observed, ‘those who do not learn history are condemned to repeat it,’ let us reflect on what successful investors have done to deal with this problem.
Benjamin Graham answered it best when he said, ‘in the short run, stock market is a voting machines and in the long run, it is a weighing machine.’ There is much wisdom in this one stanza than in many a book on the subject of investing.
It is like you concede defeat to Mr. Market in the short run, yet emerge as a surprise winner in the long run. It requires a sound temperament to accomplish this task but it is well rewarded.
A natural consequence of this lesson is to not succumb to ‘timing the market’ syndrome and follow the ‘time in the market’ rule towards investing.
In a nutshell, ‘time in the market’ rule says that if you appreciate the fact that predicting market movements is not a rational course of action then it becomes much easier to stay invested for longer periods of time, which is the cornerstone on which wealth is created in the stock markets.
Any investor following this rule would have reaped the benefits of this rule immensely during the last few months as Mr. Market caught the investor community on the wrong foot once again. It will happen again but you need not worry much, if you can remain equanimous.
Let me end the write-up with Rothschild’s Law. The legend goes like this:
‘When asked if there was a technique for making money in the stock exchange, Nathan Rothschild said, ‘there certainly is. I never try to buy at the bottom and sell at the top.’