How We Think About Markets

"Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market."

--Benjamin Graham, Author, The Intelligent Investor, 1949

We believe that investment markets can be manic-depressive in their behavior. Sometimes they are ebullient and willing to overpay for assets, and sometimes they are downcast and willing to sell at large discounts. Because of this irrational nature, prices tend to fluctuate more than the asset values they are supposed to represent. As a result, prices can become disconnected from values, allowing rational investors to make opportunistic purchase and sell decisions.

Where value is determined by earnings and assets, price is set by the most greedy buyer or fearful seller. Thus, a rational buyer welcomes a climate of fear because of the low prices that it produces, just as the rational seller likes the high prices produced by a cheerful environment.

The important thing to remember is that the markets are there to serve us, not instruct us. When opportunities are presented, we must be prepared to act. As hard as it may be, we can't allow ourselves to be distracted by the level of the market or state of the economy.