Mr. Market was an imaginary character that was created by Ben Graham. Ben Graham wrote “The Intelligent Investor”, which is considered to be the bible of investing and happens to be Warren Buffet’s favorite investment book.
Ben Graham wrote that Mr. Market came to you every morning and offered to buy and sell certain stocks from you at a certain price. For him, Mr. Market was the collective representation of the entire stock market and was meant to be your servant. A servant that offers to buy and sell stocks at a certain price.
Mr. Market is not there to advice you about the stock market prices or tell you whether you are right or wrong, he is just there to make the deal for you.
In short, Mr. Market is the collective representation of all the buyers and sellers in the market and sometimes epitomizes the greed and fear that drive the entire stock market.
Mr. Market offers you a price, sometimes this price may truly reflect the value of the company, and at other times, the price may be outright silly.
The key lesson in this story is that Mr. Market only makes the trade for you, he doesn’t tell you whether the price is right or wrong.
This story helps you differentiate between the price and value of stocks. Look around you and you will find thousands of investors who invested in stocks just because others were doing so. And then they dumped stocks because others were doing the same thing.
Very often, you tend to think that if the market is paying such a low price for a stock, then it must really be worth that much. Nothing could be farther from the truth. The market is just the aggregation of thousands of greedy and fearful investors (many of who you even know in your personal life).
Do not let the opinions of such investors sway your decision making. Warren Buffet says, that you should be able to buy a stock, regardless of whether others like or dislike it. This is central to treating Mr. Market as just the deal maker and not the one who knows whether price is right or not.
Trust your own instinct and analysis, and when Mr. Market offers a good deal to you, take it. You may just know more than him.