VoiceGap

Filling the space between You and Your Apps

Mister Market : Introduction to a mobile app for business value investing

In this post I introduce the Mister Market App.     Mister Market comes from The Intelligent Investor by Benjamin Graham.

Graham’s favorite story is that of Mister Market, a partner in your business who turns up every day at the your door offering to buy or sell his shares of the company at a different price. Often, the price quoted by Mister Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mister Market doesn’t mind this, and will be back the following day to quote another price.

The catch is, Mister Market is an emotional wreck. At times, he suffers from excessive highs and at others, suicidal lows. When he is on one of his manic highs, his offering price for the business is high as well, because everything in his world at the time is cheery. His outlook for the company is wonderful, so he is only willing to sell you his stake in the company at a premium. At other times, his mood goes south and all he sees is a dismal future for the company. In fact, he is so concerned, he is willing to sell you his part of the company for far less than it is worth. All the while, the underlying value of the company may not have changed – just Mister Market’s mood.

In building this App the investor should treat each of his or her stock purchases as if they were going to buy the entire company. In most cases, you don’t need to worry about the economy or even the stock market as a whole. The only requirements of a relatively successful investor are the ability to value a business and the right emotional and psychological approach to stock prices. This relatively simple metaphor for Mister Market should forever change the way you look at stock prices.  The goal of this App is to help you cope with Mister Market.

Here is an interrim summary (which will be used later to drive the design):

  • You have to select businesses that are going to be around long enough for Mister Market to offer a price that is acceptable.
  • You have to understand the intrinsic value of the business and whether Mister Market is offering to buy for more than the intrinsic value or sell for less that the intrinsic value.
  • You have to monitor the profits as at least one key indicator of intrinsic value fluctuations.
  • You have to select reasonable buy and sell rules to get your expected returns.
  • You need to monitor your pool of potential businesses to decide if it’s worth trading out of one investment so you can buy into a new one.

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