Mr. Market’s Whims

Apr 2005 //
Cycles
Economics
Risk vs. Volitility

I could go on (and on) listing economic factors that get press when markets decline (and that are largely ignored when markets rise), but I think you’ve caught my drift.  Our economy simply doesn’t change quickly, although Mr. Market’s whims—which aren’t bound by economic forces—can turn on an emotional dime.  More accurately, his whims aren’t bound by these forces over the short run.  Over the near term, therefore, stock prices can and will fluctuate out of proportion to changes in the economy.  Over the longer term, however, Mr. Market is a veritable slave to the power of economic forces.  Indeed, it is precisely the difference between Mr. Market’s short-term inattentiveness to economic factors and his longer-term yielding to them that creates investment opportunities.