Mood Swings Of Mr Market

Long-term growth prospects as ‘perceived’ by the collective wisdom of investors (famously allegorised as Mr Market in The Intelligent Investor by Ben Graham) are embedded in stock prices which leads to major fluctuations whenever those perceptions change. Change in perception regarding long-term prospects due to short-term events provides maximum opportunities in investing. For example, the opportunity provided by the initial shock of a lockdown in March 2020 after the first Covid wave. How does one quantify Mr Market’s optimism and pessimism? One way is to look at valuation parameters like P/E. Another way is to ‘reverse-engineer’ stock price to arrive at how much value is being assigned by the market to long-term growth in earnings. Using our proprietary ‘reverse-engineering’ MILTGV (Market Implied Long-Term Growth Value) framework, we can...