I was reading an article this morning that pretty much sums up the infectious greed of human beings. As sad as it is, human psychology is probably a better indicator than P/E ratios, and mathematical calculations in valuing a company.
Keep in mind when I read the paper, I am just scanning to get a feel for what the masses are doing, thinking, and saying.
Yesterday, in Milwaukee, Allstate Insurance Company was giving away $30 worth of free gasoline as a reward to the city for its safe driving record. Like a herd of elephants, drivers began lining up at midnight, and the line was so long that it stretched into residential areas blocking driveways and creating havoc.
Before it was all said and done, fights broke out, two cars were involved in accidents, and four people were arrested. All of this mayhem occurred as greedy consumers were determined to get their share of one tanker truck of gasoline. - Read Article
Excuse me if I am sounding a bit audacious, but isn稚 this behavior a little rash for just $30 dollars worth of gas? No, I think a better term would be stupid.
While most Wall Street types are busily reading the Wall Street Journal and poring over research reports, the nation痴 second richest man is reading newspapers and magazines to get a feel for what the public is thinking and doing.
If you ever wondered where Mr. Buffett got his investment ideas, all you have to do is pay attention to the analogies he learned from Ben Graham on Mr. Market.
Mr. Market is a fictional person that is a culmination of human psychology. Its make up is derived by the irrational actions of investors like you and I, and Wall Street types who do not have the common sense to keep their fingers on the pulse of the consumer.
As you are probably aware, economic reports only tell us what has happened, and not what is about to occur.
For example, economic reports 6 months ago did not signal the inflation we are experiencing today. We do not need an economic report to tell us that prices are rising when we experience it on a daily basis. Anyone that buys gas or a sub sandwich knows that businesses have raised their prices.
Mr. Market is much more than what investors do in the stock market. In fact, Mr. Market is part of a consumer痴 attitude in most bubbles and busts.
In 1999, Mr. Market was heavily involved in the internet craze. Over the last 5 years, Mr. Market was involved in the real estate boom. In Milwaukee yesterday, Mr. Market told us that consumers are hurting, and the election in November will be a difficult one for the party in power.
Mr. Market was involved in Buffett痴 investments in Petro China and Conoco-Phillips. The fascination of consumers for buying stuff over the internet led to Mr. Buffett痴 purchase of UPS. Why? Someone has to deliver all of that stuff.
Of course once Mr. Buffett finds out what Mr. Market is doing, he seeks out investments that correspond with the manic actions of investors. Once this is done, he simply plugs in his intrinsic value calculations into each company, and makes a decision.
Unless the actions of Mr. Market are obvious, he patiently waits and sits on his cash. This is the strategy we are using right now.
