Search
Get in touch!
Linkedin X-twitter Envelope

Howard Marks: Remember our Old Friend, Mr. Market?

In his recent memo, Howard Marks explores the concept of “Mr. Market,” a metaphor introduced by Benjamin Graham to describe the stock market’s erratic behavior. Marks discusses the market’s tendency to miscalculate asset values due to emotional swings between optimism and pessimism.

He reflects on the recent weeks market volatility, including the large drop in Japan, highlighting how psychological factors, rather than fundamental changes, often drive price fluctuations. Howard emphasizes the importance of rational analysis over emotional reactions in investment decisions and advises investors to capitalize on market miscalculations by buying undervalued assets and selling overvalued ones, rather than being swayed by the market’s irrational behavior.

Here are the key takeaways:

  • Mr. Market Metaphor: The market is often irrational, swinging between optimism and pessimism, leading to mispricing of assets. Recent market volatility was driven by psychological factors rather than fundamental changes. This provides opportunities for investors to buy undervalued assets and sell overvalued ones.
  • Market Dynamics: The market’s lack of immutable rules and its dependence on investor psychology lead to instability. Investors should avoid following the crowd during irrational market movements and instead capitalize on these opportunities.
  • Rational Expectations vs. Reality: While rational expectations theory suggests that individuals make decisions based on available information and past experiences, market behavior often deviates from this due to emotional and psychological factors.
  • Investment Strategy: Successful investing requires recognizing market miscalculations and acting rationally, rather than being swayed by market sentiment. Investors should focus on intrinsic value and make decisions based on thorough analysis.

See Mr. Market’s overreactions for what they are and accommodate him, selling to him when he’s eager to buy regardless of how high the price is, and buying from him when he desperately wants out.

Click here to go to the external source.

Share the news

Disclaimer of liability

The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk

You might also find this interesting:

Michael Mauboussin: Drawdowns Are The Unavoidable Cost of Long-Term Investing

June 6, 2025

Michael Mauboussin from Morgan Stanley Investment Management have published a comprehensive analysis examining stock market drawdowns and recovery patterns from 1985 to 2024. The research reveals that even the most successful investments experience severe price declines, with the median stock suffering an 85% drawdown that takes 2.5 years from peak to trough.

The study analyzed over 6,500 companies and found that more than half never recover to their previous highs. Michael’s work demonstrates that large drawdowns are an inevitable feature of equity investing, affecting individual stocks, mutual funds, and even portfolios with perfect foresight.

Thomas Gayner: My Current Take on Novo Nordisk

June 6, 2025

In his interview, Tom Gayner, CEO of Markel Group, reflects on investment principles shaped by Warren Buffett and Charlie Munger, and offers a detailed assessment of Novo Nordisk. Gayner praises Novo Nordisk for its business quality, global leadership in diabetes treatment, and strong growth trajectory. He credits the company’s disciplined management and innovation in pharmaceuticals as exemplary, aligning with his own standards of long-term value creation.

Michael Mauboussin: Put Expected Value In Your Valuation Toolkit

May 21, 2025

In this article, Michael Mauboussin explores how investors can generate excess returns by focusing on the gap between price and value, emphasizing the practicalities and psychology of expected value in investment decisions. He explains that while price is observable, value is inherently probabilistic, requiring careful estimation of possible payoffs and their probabilities.

The paper covers the challenges of modeling uncertainty, the importance of considering both probabilities and payoffs, the psychological hurdles investors face (like loss aversion), and best practices for applying these concepts across asset classes.

Bill Ackman: Success is Not A Straight Line Up

May 21, 2025

In the 2025 UBS Berkshire Hathaway Fireside Chat, Bill Ackman and Ryan Israel from Pershing Square Capital discuss investment philosophy, market volatility, the impact of tariffs and geopolitics, and lessons from Warren Buffett.

The conversation covers how to identify durable, high-quality businesses, the importance of long-term thinking, and the evolving landscape for activist investing. Ackman shares personal reflections on resilience, mentorship, and the role of free speech, while both speakers provide practical advice for young investors and fund managers.