One of the most important concepts to grasp as a value investor is one that is perhaps not that intuitive to everyone. That concept is that the price of a stock and the value of a stock are two different things, and they are not necessarily equal – in fact they almost never are!
This is important, because value investors are interested in buying companies when the price is less than it’s true value. In other words we are bargain hunters, and seek to buy at the lowest price possible. But what exactly do we mean when we say that price is not the same as value? When IBM is trading at $60 per share, doesn’t that mean that it’s worth $60? The answer is no – let’s see why. Continue reading