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Stocks are an ownership stake in a business. They are not merely a piece of paper or electronic entry with an arbitrary number (the stock price) associated with them. When you buy a stock, you are becoming a partner in a business. Therefore, you should focus your efforts on developing a thorough understanding of the business, its industry, its strategy and its total worth.

A company’s total worth, or "intrinsic value", is affected by developments in the business, its industry and the economy as a whole and is much more stable than the price its stock. The periodically large deviations between stock price and intrinsic value are what we seek to arbitrage to earn above-average, risk-adjusted returns.

Because the valuation of companies is imprecise and entails a myriad of projections and inputs, we require a discount (called the "margin of safety") to our estimates of company total worth. This margin of safety helps guard against incorrect assumptions and adverse developments. Simply put, we never pay the full price of what we think a company is worth, but demand a discount.

Mr. Market is a concept developed by Benjamin Graham in his classic work, The Intelligent Investor. Graham suggested that investors think of the stock market (or any financial market) as you would a very obliging business partner.

"Every day Mr. Market tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly."

Mr. Market is there to serve us, not to advise us.