๐๐๐Warren Buffett once said "Price is what you pay, value is what you get". This to me encapsulates a core principle of value investing and serves as a poignant reminder to look beyond the share price of a stock.
What is the difference between Price and Value?
Price is the amount of money we pay when we buy something. In the context of stocks, it is the market quote at which a share of a company is bought or sold. The price can be influenced by market sentiment, short term news and speculative behaviour.
Value refers to the intrinsic worth of an asset. It is determined by Fundamentals such as a company's earnings, growth prospects, assets and overall financial health. While price fluctuates frequently, the underlying value is more stable and represents what an asset is truly worth in the long run.
What are the Investment Implications?
Instead of simply chasing high priced stocks or market trends, Warren Buffett advises us to assess whether the price paid reflects the true value of the asset. This means doing our homework in evaluating financial statements, understanding the business model and estimating future earnings to get a sense of its intrinsic value.
It also means identifying opportunities in a market where a great company can be selling at a discount if the market misjudges its long term prospects or reacts impulsively to its short term challenges. When we recognise that the market price is below the intrinsic value of such a stock, it is a fantastic moment not to be missed. On the other hand, paying a premium for a stock that does not justify its high price exposes us to the risk of overpaying.
Warren Buffett's approach also encourages us to think long term. Over time, the market tends to correct itself and the price of a stock will more accurately reflect its underlying value. By focusing on value, we aim to build a portfolio that can withstand the volatility of the market and deliver sustainable returns.
Therefore it is not about how much the share price of a stock cost but rather its fundamentals is of greater importance to me.
SOXL versus Nvidia versus Netflix - which would stock I buy? I prefer to stick to Index ETFs such as $SPDR Portfolio S&P 500 ETF(SPLG)$
Ultimately there is no right or wrong in investing. It all depends on an individual 's goals and risk appetite.
My goal is FIRE - "Financial Independence Retire Early" and I am investing for the long haul. Volatility is the price I am prepared to pay for long term outsized gains.
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Happy investing guys ๐