Chapter 8:
The Investor and Market
Fluctuations
Prepared BY:
Garima Adhikari (08)
Fluctuations Into Opportunity: The Two
Ways
1. Timing the market (speculative and unreliable)
2. Pricing the market (difficult but rewarding)
Why Buy-Low-Sell-High approach is not
advisable?
Bull markets used to have certain characteristics:
 Historically high price levels;
 High P/E ratios
 Much speculation on margin
 Many IPOs of poor quality
The Problem:
 Difficult to understand whether you are in a bear or in a bull market.
Formula Plans
Investor can establish formula plans based on following factors:
◦ price-earnings ratios,
◦ dividend yields,
◦ fundamental indicators, e.t.c
The Problem:
• Not for long run
• Does not provide competitive advantage.
Mr. Market Parable
◦ A crazy person that offers you a quote on your stake in business on a daily
basis.
◦ Personification of the stock market as a whole.
Qualities of Mr. Market:
◦ Persistent -makes an offer every day.
◦ Clueless – Does not know the worth of his products.
Market= Fluctuations
The Psychological Aspect
Investor VS Speculator
Graham’s Message
◦ Take advantage of low price levels and high price levels.
◦ Buy when you have money but be careful what you buy.
◦ Never buy or sell something due to market moves.
◦ Don’t worry about market fluctuations as you can’t influence those.
◦ Be a business owner.
◦ Avoid buying when market has extremely high valuations, look for special
situations.