Fool.com: Mr. Market is a Manic-Depressive Idiot (Fool On the Hill) October 6, 1999

FOOL ON THE HILL
An Investment Opinion

Mr. Market is a Manic-Depressive Idiot

By Bill Mann (TMF Otter)
October 6, 1999

"Be the ball, Danny." -- Caddyshack

C'mon, say it with me now. "I am the market." Even if you don't believe it, just say it. By the end of this article, I hope you believe nothing but.

You see, Mr. Market is a manic-depressive idiot. Think about it. How many times have you seen someone, somewhere, say something or do something that causes the indices to plunge, or conversely, to skyrocket.

Steve Ballmer thinks tech stocks are overvalued.

Ralph Acampora expects the Dow to fall to 8,000.

It's Arbor Day.

Crazy Woman Creek Bank (Nasdaq: CRZY), a real bank, cuts its rating on Microsoft (Nasdaq: MSFT) from "good" to "not so good."

Or does the following sound familiar?

"For this breaking news, we go to Bob Pisani on the NYSE trading floor:"

"Well the news that the Albanian Prime Minister turned his head and coughed has really caused a panic in the Market. Coupled with the higher-than-expected beef jerky prices coming out of Argentina, this news has made the mood quite ugly down here on the floor. The Market is looking for some reason to be optimistic and not finding anything at all."

Come again? Who makes this stuff up anyway? (Obviously in the case of the satire above, I made it up.) In the past month, there has been, on a near daily basis, some set of numbers coming out that "the market" seemed to be really concerned about. And for some reason, these numbers could neither be too high nor too low, or else evil Ol' Man Greenspan is going to come out of his castle and smite all our firstborns.

In fact, on the morning before the September Federal Open Market Committee (FOMC) meeting, one of the CNBC heads said that the market was actually looking toward the October meeting as the watershed meeting for the long-term bias of the Fed in regard to interest rates. Now the October meeting has come and gone and Mr. Market now has a new worry -- the next meeting.

Now, don't get me wrong, interest rates, gold prices, the Nigerian coffee crop, and most anything else can affect securities prices. That's what makes the marketplace such a wonderful creation -- the amount of contributing factors is nearly endless.

But the Wise media treatment of the market is just stupid, isn't it?

It asks us to look to the lunatic fringe to gauge the overall mood of the entire community. It's just not right. After all, 99% of the market heard the same news and did, well, absolutely nothing. The media counts on those members of the trading community most sensitive to environmental changes (or those with a cynical rationale for stoking the flames of panic or enthusiasm) to represent the mood for all of us. And brutha, it just ain't so.

Think about it -- were you deeply concerned about the September Consumer Price Index? And if you were, why? The Wise media would have us believe that events like this one can turn Mr. Market into one moody hombre. I'll tell you my reaction:

"Hmm. Looks like the CPI was - HOLY CRAP! My socks don't match!"

But that doesn't make for good television, or good reading, at least not on a daily basis. You see, one would hope that I get smart to the fact that my socks would have a much better chance of matching if I quit dressing in the dark. But no, I refuse to learn.

But why does the Wise media insist on counting on those who refuse to learn to tell me how I feel? Joe Bag of Doughnuts Daytrader is freaked out about the effect of El Ni�o on his long-term positions? (Meaning those he won't sell before he goes to lunch.) That's his problem, and has no bearing upon how I -- as someone who on 97% of all days, does not even consider buying or selling, and on 97% of the remaining 3%, STILL end up doing nothing -- feel about the overall health of the market.

So that's the rub, isn't it? The media needs a market that has violent mood swings. That's why it never spends much time focusing upon the people who bought Southwest Airlines (NYSE: LUV) in 1986 and then yawned every time Mr. Market had a hissy-fit. Because a slow 1300% gain just isn't that much fun to watch. But a good old-fashioned hedge fund meltdown, now that's good stuff.

Do you believe that there is a mythical being named "Mr. Market" somewhere determining like Santa Claus which investors get treats and which get a lump of coal? Does Mr. Market reside in some Valhalla and say, "Well, CMGI's (Nasdaq: CMGI) investors have been good this year, I'm going to send them a treat when the company releases earnings," or "Waste Management (NYSE: WMI). Bad dog! No biscuit!"

That's crazy, right? The market is a combination of all of the people buying and selling stocks. There are big participants and small ones. Rational ones and irrational ones. Ones who see a shadow and think it's a monster, and ones who see monsters and think they're shadows. Most people, in most situations, with most of their holdings, speak volumes by doing nothing. They are the market, even though their voice is muted by those who happen to be reacting to one external factor or another.

No, Mr. Market is not out there, somewhere, throwing news bites to some investors and cutting ratings out from under others.

The market is in all of us.

We each individually choose our investment path, be it Foolish, foolish, or a mixture thereof. I choose to focus on company fundamentals. I buy when I think a company is cheap relative to its intrinsic value. That's it. And, more importantly, it doesn't change. External factors may or may not cause a revision in my assessment of intrinsic value, but they never, EVER make the sole determination as to whether I sell.

I am the market.

And I have never been polled for my reaction to the failed jute crop in Bangladesh. Nor would such a tumultuous event cause me to rush to the phone to sell my Dell (Nasdaq: DELL) in a panic.

Therefore, I don't really count, because the ones who do count are the ones making the transactions at any point in time. We all track our performance on the basis of the last trade made by anyone, anywhere in the world.

But who's to say that the person making that trade is not stark raving out of their mind, or at a minimum buying or selling on information that even the most green Fool would look at and say "Pshaw!"

This is why I rail against tracking the short-term movements of your stocks -- because doing so hands over psychological power to an irrational source, or for you conspiracy theorists out there, a highly rational and sinister force. That's why I liken "Mr. Market" to Santa Claus. We entrust our return on investment to a paranormal being that exists out there to reward us for our ability to be correct or punish us for being incorrect. We want Mr. Market to be our friend. We want him to treat us well. We get sad, for no apparent reason, when he lashes out against us and punishes us. We pray to him, we invoke his name, we hope he brings us a present.

Oh, and just one more thing, just like Santa Claus, Mr. Market does not exist.

The market, that concept that the higher evaluating being is in all of us, most certainly does exist. I am the market. I choose to care about certain issues, and to ignore other ones. I know that external forces will have the effect of pushing the value of my holdings in an irrational sense, and I attach nothing to the power of those forces to do so. My reward, in the long run, is based upon my own ability to assimilate those events that are directly related to the performance of the companies I own.

But Mr. Market, the hidden force, is nothing more than a combination of my investment outlook with every other strategy on the face of the planet. The ultimate form of management by committee.

Kind of creepy, eh?

So, say it with me now -- say it like you're in a Nike commercial -- I AM THE MARKET. This is important because Mr. Market gains power based upon the willingness of the masses to believe in him. Breaking the psychological dependence on the freakshow that is the short-term market returns the power back to you.

That sounds pretty good, doesn't it?