Benjamin Graham used an imaginary investor called Mr. Market to demonstrate his point that a wise investor chooses investments on their fundamental value rather than on the opinions of others or the direction of the markets.
Let's say you own a business and have a partner. His name is "Mr. Market." Your business is a good one. It has given you a high return on what you have invested in the business. The only problem is that your partner, Mr. Market, is kind of a strange dude. He's very emotional. Some days he's on a very euphoric high and other days he's very depressed.
Mr. Market has a curious habit. Every day he comes into the office and offers to sell you his share of the business or buy yours. However, because he is so moody, if he happens to be euphoric on a particular day, he wants a very high price for his share. On the other hand, if he's in one of his down moods, he's willing to sell out for a pittance.
The interesting thing about Mr. Market is that he doesn't seem to care whether or not you choose to buy his interest or sell yours. He doesn't get his feelings hurt. You can do whatever you want. It's completely up to you. He just keeps coming in the office every day, offering to buy or sell at wildly different prices. It's always the same good business it has always been. That doesn't change. It's just that, depending on his mood, some days Mr. Market is enthusiastic about the business and other days he's very pessimistic.
Since you know what the business is worth, you can just listen to Mr. Market's offer every day and decide if his offer is a good one or one you want to turn down. Even though Mr. Market's moods might be difficult to get used to, he's actually a great business partner to have.
That's exactly the way you should view the stock market. Choose your favorite business that happens to be one of the 10,000 or so publicly traded stocks. Look at the stock tables in the paper and notice the yearly high and low price for that stock. You'll find that there can be a dramatic difference between the high and the low during a single year. The business hasn't changed. It's just the mood of Mr. Market that changes.