{"id":3316,"date":"2021-11-29T23:56:00","date_gmt":"2021-11-29T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=3316"},"modified":"2025-05-28T09:10:07","modified_gmt":"2025-05-28T01:10:07","slug":"price-and-value","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/","title":{"rendered":"Misunderstanding of price and value"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/#General_retail_investors_mentality\" >General retail investors mentality<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/#Have_Buffet_evolve_from_orangutan_to_human\" >Have Buffet evolve from&nbsp;orangutan&nbsp;to human<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/#It_will_show_the_value_paid_for_high-quality_stocks\" >It will show the value paid for high-quality stocks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/#Growth_stocks_are_not_cheap\" >Growth stocks are not cheap<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/price-and-value\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-medium-font-size\"><span class=\"ez-toc-section\" id=\"General_retail_investors_mentality\"><\/span><strong>General retail investors mentality<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The difference between price and value is the first lesson for all investors. As I said in section 5-2 of the book &#8220;The Rules of Super Growth Stocks Investing&#8221;, most people incline to buy penny stocks, thinking that low-priced stocks have more room to rise in the future and are less risky. In fact, the risk is relatively high. The reason why they become penny stocks is because the company&#8217;s operations have encountered an unsolvable dilemma, and the probability of resurrection is very low. &#8220;Investors should consider the value of the company, not the price.&#8221; <\/p>\n\n\n\n<p>For long-term investors, especially growth stock investors, don\u2019t See the tree but not the forest. The stock with high-quality and competitive are usually high-priced stocks; don&#8217;t argue the price with market, and never give up high quality stocks buying just because of several cents spread, and thus missed the opportunity to hold 10 times or 20 times the stock. You know, the potential growth potential of good companies is always unlimited (this is where the value lies).<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-medium-font-size\"><span class=\"ez-toc-section\" id=\"Have_Buffet_evolve_from_orangutan_to_human\"><\/span><strong>Have Buffet evolve from<em>&nbsp;<\/em>orangutan&nbsp;to human <\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Munger also said that &#8220;good company stock prices are usually expensive.&#8221;  <a href=\"https:\/\/www.cnbc.com\/2021\/06\/29\/cnbc-transcript-billionaire-investors-warren-buffett-charlie-munger-sit-down-with-cnbcs-becky-quick-for-cnbcs-buffett-munger-a-wealth-of-wisdom-.html\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett said &#8220;Charlie&nbsp;Munger&nbsp;allowed me to evolve from<em>&nbsp;<\/em>orangutan&nbsp;to human as quickly as possible.&#8221; <\/a>One of the most critical battles was the merger and acquisition of See&#8217;s Candies. Buffett later accepted Munger\u2019s advice before buying See&#8217;s Candies. <\/p>\n\n\n\n<p>The biggest change in the middle was that Buffett no longer insisted on adopting his teacher Graham\u2019s &#8221; Cigar Butt investment&#8221; method (see my other blog post <span style=\"font-size: revert;\">&#8220;<\/span><a style=\"font-size: revert;\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/07\/problems-with-cigar-butt-investment\/\">Problems with cigar butt investment<\/a><span style=\"font-size: revert;\">&#8220;<\/span>) &#8212; that is, no longer stick to the stock price only, instead, it will be included in the non-quantitative value when considering the intrinsic value of the stock (please see my another post <span style=\"font-size: revert;\">&#8220;<\/span><a style=\"font-size: revert;\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/08\/24\/non-quantitative-factors-determine-success-or-failure-of-an-investment\/\">Non quantitative factors determine success or failure of an investment<\/a><span style=\"font-size: revert;\">&#8220;).<\/span><\/p>\n\n\n\n<p>In 1989 Berkshire Hathaway shareholder letter, Buffett wrote &#8220;It&#8217;s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first\u2010class businesses accompanied by first\u2010class managements.&#8221;<\/p>\n\n\n\n<h2 class=\"wp-block-heading has-medium-font-size\"><span class=\"ez-toc-section\" id=\"It_will_show_the_value_paid_for_high-quality_stocks\"><\/span><strong>It will show the value paid for high-quality stocks<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Charlie Munger ever said &#8220;Over the long term, it\u2019s hard for a stock to earn a much better return than the business which underlies it earns. If the business<br>earns 6% on capital over 40 years and you hold it for that 40 years, you\u2019re not going to make much different than a 6% re-turn\u2014even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you\u2019ll end up with a fine result.&#8221;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"190\" height=\"127\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2022\/09\/Freepik-1.jpg\" alt=\"price and value\" class=\"wp-image-13948\"\/><figcaption class=\"wp-element-caption\">credit: Freepik<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading has-medium-font-size\"><span class=\"ez-toc-section\" id=\"Growth_stocks_are_not_cheap\"><\/span><strong>Growth stocks are not cheap<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If investors carefully examine all the stocks that have achieved at least 10 times or more than 20 times in the past, these stocks have been found to be high-priced stocks during their entire listing process. Until the growth slowed down and became a general stock (but at this time it has also risen dozens of times). Unless you are willing to take risks (don\u2019t have this gambler mentality), or you are really expert, the company is within your circle of competence and buys the company\u2019s initial listed stock at a lower valuation; otherwise, &#8220;it is impossible for ordinary people to buy any growth stocks at a cheap price.&#8221; Keep this in mind!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/12\/26\/complicated-math-stock\/\">Complicated math is not required in stock investing<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/12\/19\/investing-has-no-formula\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investing has no formulas, but there are ways to invest successfully<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/16\/vaguely-right-than-wrong\/\">I would rather be vaguely right than precisely wrong<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/10\/02\/investment-uncertainty\/\" target=\"_blank\" rel=\"noreferrer noopener\">The uncertainty in investment<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/17\/why-i-prefer-growth-stocks-instead-of-value-stocks\/\">Why I prefer growth stocks instead of value stocks?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/21\/growth-vs-value-investing\/\">Growth vs. Value Investing, Buffett&#8217;s view<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/23\/value-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">The past and present of value investing<\/a>&#8220;<\/li>\n\n\n\n<li><a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/07\/cigar-butt-investment\/\" target=\"_blank\" rel=\"noreferrer noopener\">&#8220;Problems with Cigar Butt Investment<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/05\/27\/benjamin-graham-on-value-investing-grahams-bio-book\/\">&#8220;Benjamin Graham on Value Investing&#8221;, Graham&#8217;s bio book<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/09\/29\/inflation-and-rate\/\">Tax, inflation and rate are the top three serious killers to investors<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/07\/buffett-deserves-study\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why Buffett deserves further study?<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p id=\"block-6f293628-da99-4351-8829-1cc8cc0a590b\"><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Misunderstanding of price and value. The difference between price and value is the first lesson for all investors.  As I said in section 5-2 of the book &#8220;The Rules of Super Growth Stocks Investing&#8221;, most people incline to buy penny stocks, thinking that low-priced stocks have more room to rise in the future and are less risky. In fact, the risk is relatively high. <\/p>\n","protected":false},"author":1,"featured_media":13948,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32,50,15,33,13,14,17,779,11],"tags":[],"class_list":["post-3316","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-value-investing","category-benjamin-graham","category-charlie-munger","category-growth-investing","category-investing-behavior","category-investing-concept","category-investing-psychology","category-risks","category-buffett"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/3316","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=3316"}],"version-history":[{"count":25,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/3316\/revisions"}],"predecessor-version":[{"id":36649,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/3316\/revisions\/36649"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/13948"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=3316"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=3316"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=3316"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}