Understanding the Disconnect Between Sentiment and Valuation

On days like today, when the market is down a bunch, I usually get some client calls that go like this:

Client: Hey Chuck. What's going on with the market?
CG: It seems to be going down.
Client: Well, what do you think?
CG: I dunno. I've picked out a bunch of value-oriented investments which I think ought to do well in most market environments, are reasonably priced, and together form a conservative portfolio. I've got some nifty ideas for new investments, that I'd love to buy if the market keeps coming down like this.
Client: So you're not worried.
CG: I'm always worried. That's my job. To be worried for you, so you don't have to worry.
Client: OK

While it's been written a million different ways, by all sorts of value investors, I try to tell clients that stock prices go up and down, but behind each ticker is a company that we can ascribe a value to. While this value is subject to change due to macro-factors (such as interest rate fluctuations and economic growth here and abroad) and micro-factors (such as competition and corporate management changes), what happens in the stock market today or tomorrow rarely effects this value.

Market movements are changes in sentiment. Does today's down market or this year's up market mean:
- that domestic trucking tonnages are rising? No.
- that Korean mobile phone churn/ARPU is changing? No.
- that Wal*Mart is suddenly reversing it's plans to reduce growth spending and buyback $15B of stock? No.
- that Chesapeake Energy is having less success drilling for Natural Gas - or, more importantly, that domestic natural gas supply/demand trends are changing? I don't think so.

Stock buying and selling opportunities are created by this disconnect between sentiment and individual company valuation/trends. Knowing how to take advantage of this discrepancy is one key to making money in stock investing.