If there’s one lesson investors need to understand before they’ll be able to make money in the sharemarket, it’s that you need to ignore what the market as a whole is doing.

Legendary investor Howard Marks repeated the lesson in his latest quarterly newsletter,

“Especially during downdrafts, many investors impute intelligence to the market and look to it to tell them what’s going on and what to do about it. This is one of the biggest mistakes you can make. As Ben Graham pointed out, the day-to-day market isn’t a fundamental analyst [nor a single entity]; it’s a barometer of investor sentiment. You just can’t take it too seriously. (Emphasis his).

Mr Marks continues, “It would be wrong to interpret the recent worldwide drop as meaning the market ‘knows’ tough times lay ahead.

It’s important to remember what the share market is. Thousands if not millions of people, fund managers, super funds, traders, long-term investors, all buying and selling shares. Don’t forget that for each trade, there’s someone buying and someone selling – with completely different views.

Commonwealth Bank of Australia (ASX: CBA) saw its share price fall 0.8% last week – while the market, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) dropped 2%. But for every CBA share sold, there was an investor buying – and more than 13.5 million CBA shares changed hands last week.

The combination of millions of individual trades is what makes up the market – but no single trade is aware of every other trade happening – so to assume there’s some intelligence and hard fact behind multiple trades is a big mistake.

The recent market falls are a perfect example of this. Investors have become fearful that China isn’t growing as fast as they had hoped or would like; falling commodities prices are one result of that – not to mention huge global oversupply of many commodities including oil, iron ore, copper and coal. Add in additional uncertainty over the recovering US economy and investors’ fears of how higher interest rates will impact the market, and market sentiment becomes one of fear.

Simply following the market – selling when it falls and buying back in when it rises – will end in tears.

Foolish takeaway

The key remains simple – buy shares in high-quality companies at cheap prices, hold for the long term and reinvest regularly into the market. With the S&P/ASX 200 back at levels it saw in mid-2013, now is a perfect opportunity to take advantage of all those investors/traders/speculators who haven’t yet learnt the lesson.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.