It’s the fact that stocks do go up and down for seemingly no reason that a lot of people are scared to invest in stocks. In his seminal work, The Intelligent Investor*, the great investor and teacher to Warren Buffett, Benjamin Graham, personified the stock market as “Mr. Market”. He attempted to rationalize the gyrations by explaining that the stock market was like a moody, bi-polar salesman. And every day he comes to your doorstep ready to buy and sell stocks. Sometimes he’s in a particularly pessimistic mood, and on days like this he is usually willing to let stocks go cheaply because he’s worried about all of the problems in the world. Other days, he’s feeling particularly upbeat and the stocks he’s selling are priced at a premium. These prices aren’t necessarily connected to the underlying performance of the businesses the stocks represent, and can quite often instead be related to psychological effects that are impossible to quantify.
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