The Difference Between Price And Value

Today’s quote of the day comes from Warren Buffett:

Price is what you pay. Value is what you get

I.e. a stock should be considered cheap if the value of the stock exceeds its current price, not just because the stock is cheap on an absolute basis.

This is a very important distinction to make in today’s market, what with fresh market bottoms being called everyday and banking executives blaming “rumors, short-sellers and other Hobgoblins” for the demise of their companies (as if the stock price of an insolvent company being propped up by lies and subterfuge is better for investors in the long run).

During times like these investors (everyone really) needs to focus on the financial health of the underlying security and not get too wrapped up in what the current stock price is,  because a healthy company with a depressed stock price is a good investment, whilst a weak company with a healthy stock price is nothing more than a house of cards.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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