EDITOR'S LETTERMerryn Somerset Webb
One of the greatest books ever written on investment is Benjamin Graham’s The Intelligent Investor. You can learn more about Graham’s ideas on the merits of value investing in this week’s interview with value fund-management firm Oldfield Partners – and if you are serious about stock picking for yourself, you should definitely read the book. But in the meantime I will tell you that the key take-away from it is the concept of Mr Market.
Graham asked investors to think of themselves as one of two partners in a business, with the other being an overemotional and frequently irrational manic depressive (Mr Market). Mr Market comes to you every day with a price at which he is willing to either buy out your part of the business or to sell you his part. His price is different every day – and very rarely bears any relation to the real value of the business. This is mildly trying, of course. But in it lies fabulous opportunity. All you have to do is to wait for him to come up with an insanely high price at which he would like to buy, or an insanely low price at which he would like to sell. On every other day you ignore him completely, but on those days you take his price. And you get rich. Easy. As long as you can keep up the ignoring bit.
Being an individual investing in the stockmarket offers exactly the same opportunities if you have the patience to wait for them. The majority of fund managers have to be invested all the time with a view to making short-term returns (that appears to be what they consider to be their job). But we can take or leave Mr Market’s prices as we like. So we can decide to stay out of the bond market completely on the basis that is it absurdly overpriced and we worry that a turning point is near.
We can choose not to invest in some of the very pricey big companies in the UK on the basis that Liam Fox had a point with his fat and lazy comments (big corporate management are all too often overpaid, over-pensioned and under-judged). We can decide not to take the prices offered by the US market (where almost everything is priced for perfection), but to take instead those offered by some of the emerging markets and the Japanese market, where the huge changes under way in corporate governance really aren’t priced in at all.
We look at some of the stocks around the world being offered to us at the right prices in our cover story and the interview. And of course we will keep looking out for more: at MoneyWeek we see a large part of our job to be letting you know when we reckon Mr Market is at his most irrational – on the upside and the downside. Finally, a note on the new word for Brexit (Brenaissance). I announced the winning word last week but not the winning person: the free subscription goes to Matthew Benson of Peebles.