Much has been written lately on Warren Buffett, the legendary value investor. The focus has been on how his stock, Berkshire Hathaway, hasn’t been able to keep up with the recent stock market activity. Amateur and professional investors have outperformed him. Either the Oracle of Omaha has lost his touch or something else is going on here.

Since so much is at stake in the zany stock market, I hope to shed some light on the subject.

The stock market is unique from virtually every other kind of market because most people don’t care about values; they focus only on prices, in the hope that they will go up. These investors control most of the money in the stock market.

While they don’t pick the stocks in their mutual funds, they do decide whether or not their money goes into the stock market by their decision to put it in a mutual fund in the first place. Money goes into the market and prices go up. Money goes out of the market and prices go down. Furthermore, real and powerful outside influences affect investor perspectives and the flow of money in the stock market. Ultimately, stock prices are affected.

In markets where consumers are very knowledgeable, there tends to be equilibrium. Most people won’t pay $1 million for a television if they can buy one with comparable features for $300.

In markets where the consumers focus on price instead of value, almost anything can happen to the price. People get excited when they see the price of a hot stock go up, and they will sell their slower-moving investments, regardless of their value.

The irony is that when there is a widespread sell-off of undervalued goods, they become even cheaper. Conversely, when there is a widespread purchase of overvalued goods, they become more expensive. These types of cycles can feed off themselves for a long time. This is exactly what’s happening in today’s stock market.

Eventually, all markets return to equilibrium. Returns don’t outpace the underlying values forever. This is why Warren Buffett has continued to focus on the intrinsic value of his investments, regardless of market conditions.

Investors everywhere need to ask themselves just how knowledgeable they are concerning their investments. What would they pay if they were buying them only to enjoy the benefits of ownership and they couldn’t sell them? Do you know your investments well enough to even answer this question? As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Andrew Kneeter is portfolio manager at Round Hill Asset Management in Pasadena.