{"id":5406,"date":"2022-02-14T22:37:40","date_gmt":"2022-02-14T14:37:40","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=5406"},"modified":"2024-07-12T18:56:52","modified_gmt":"2024-07-12T10:56:52","slug":"value-and-price","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2022\/02\/14\/value-and-price\/","title":{"rendered":"Value and price, Mr. Ge Ba&#8217;s view"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 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\/2022\/02\/14\/value-and-price\/#Note\" >Note:<\/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\/2022\/02\/14\/value-and-price\/#Related_article\" >Related article<\/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\/2022\/02\/14\/value-and-price\/#Source_for_Value_and_price_Mr_Ge_Bas_view\" >Source for Value and price, Mr. Ge Ba&#8217;s view:<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Note\"><\/span><strong>Note<\/strong>: <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Following Mr. Ge Ba&#8217;s previous article &#8220;Ge Ba\u2019s wonderful views on price and stop loss&#8221;, he put forward a wonderful palindrome view on my previous article &#8220;The Misunderstanding of Price and Value&#8221;. Yesterday, thanks to his willingness to sacrifice rest and spend a lot of time on holidays, based on recent volatility in growth stocks, provided his deeper view on &#8220;value&#8221; and &#8220;price&#8221;, and analyzed Graham and Buffett&#8217;s intention. The following is the original version, shared with readers. Andy would like to thank Mr. Ge Ba on behalf of the readers.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_article\"><\/span>Related article<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This article was from Mr. Ge Ba&#8217;s feedback my blog post <span style=\"font-size: revert;\">&#8220;<\/span><a style=\"font-size: revert;\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/11\/29\/misunderstanding-of-price-and-value\/\">Misunderstanding of price and value<\/a><span style=\"font-size: revert;\">&#8220;<\/span>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Source_for_Value_and_price_Mr_Ge_Bas_view\"><\/span>Source for Value and price, Mr. Ge Ba&#8217;s view:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Hi Andy:<\/p>\n\n\n\n<p>My palindrome mentions the difference between &#8220;valuation&#8221; and &#8220;price estimation,&#8221; because that&#8217;s what the book Security Analysis taught me (I read the 1934 edition), and my letter to Buffett and the Q&#8217;s of previous shareholder meetings What &amp;A says is verified again and again.<\/p>\n\n\n\n<p>In your article &#8220;The Misunderstanding of Price and Value&#8221;, although you kindly mentioned &#8220;don&#8217;t be too expensive for growth stocks&#8221; and &#8220;calculate about the slight bid-ask spread&#8221;, I hope everyone understands the value of growth stocks. In some cases, it should be correct. But I worry that people will misunderstand: &#8220;The price of growth stocks can be chased&#8221;. Because you don&#8217;t seem to have clearly explained &#8220;what is the standard&#8221; to everyone?<\/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-profit-stop-lose.jpg\" alt=\"value and price\" class=\"wp-image-13874\"\/><figcaption>credit: Freepik<\/figcaption><\/figure>\n\n\n\n<p>In particular, your book does not clearly separate the \u201cvaluation\u201d methods such as P\/E and P\/S from the \u201cobjective valuation\u201d methods (the term \u201cvaluation\u201d is used in the same way). It will lead to the &#8220;intrinsic value&#8221; calculated by the &#8220;objective&#8221; method is lower than the &#8220;current market price&#8221; (it should mean to start to wait patiently), but I changed to &#8220;comparative&#8221; P\/S, P\/E, P\/B valuation method, other comparison companies are so expensive anyway, so I buy a little higher price, and there is no problem.<\/p>\n\n\n\n<p>The question is, why is the market price so high now? I think it&#8217;s because of the ultra-low interest rates that we&#8217;ve never seen in history. Security Analysis 1934 ed. Ch 4 mentioned that in 1928-1929, investors frantically invested in the &#8220;blue-chip stocks of growth stocks&#8221; at that time, which caused the prices of these blue-chip stocks to continue to rise. After that time, investors repeatedly changed their valuation standards:<\/p>\n\n\n\n<p>&#8220;Investors have ignored &#8220;firmly established standards of value&#8221;, &#8220;the market made up new standards as it went along&#8221; Investors have repeatedly changed price standards, by accepting the current price-however high- as the sole measure of value&#8221;<\/p>\n\n\n\n<p>Just like the current situation. Ben Graham stated in the book: &#8220;standards of safety: by the application of definite and well-established standards&#8221;, that is, to use an objective standard to &#8220;value&#8221; to protect the safety of your principal (investment Definition). I believe that the application of these standards to the &#8220;growth value investing&#8221; we now advocate should still be the calculation method of the intrinsic value that Buffett said: &#8220;determined by the cash inflows and outflows-discounted at an appropriate interest rate- that can be expected to occur during the remaining life of the asset\u201d<\/p>\n\n\n\n<p>Ge Ba deeply believes that this method is &#8220;valuation&#8221;, other methods are &#8220;price estimation&#8221;, follow the &#8220;price&#8221; of the market to &#8220;valuate&#8221;, if you really want to buy anything, your &#8220;willpower&#8221; will let you buy it There is no need to wait.<br>Moreover, Andy encourages everyone: &#8220;Don&#8217;t worry about the price of growth stocks because of the high price&#8221; and &#8220;slight bid-ask spreads.&#8221;<\/p>\n\n\n\n<p>It\u2019s just that Ge Ba has recently researched many pharmaceutical and biotech companies. My God, I don\u2019t know when these companies will make money (I don\u2019t even know when FCF will have the opportunity to become positive), and I can\u2019t estimate the value at all, but the market is because of these companies. The revenue continues to grow, and it is considered a &#8220;super growth stock&#8221;, and it is a big buy and a special buy (anyway, those who want to buy will always estimate the bid). <\/p>\n\n\n\n<p>However, Ge Ba believes that the cycle of raising interest rates has begun, and asset prices are beginning to go down, which means that the tide is beginning to recede, which means: &#8220;Naked swimmers are beginning to show up\u2026&#8221;<\/p>\n\n\n\n<p>Ge Ba believes that not only &#8220;value&#8221; and &#8220;price&#8221; are different, but also &#8220;valuation&#8221; and &#8220;price estimation&#8221;, there is an absolutely objective method. If you can&#8217;t &#8220;value&#8221; a company, you don&#8217;t know enough about it, &#8220;you have no business buying that stock&#8221; (Buffett said).<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Value and price, Mr. Ge Ba&#8217;s view<\/p>\n","protected":false},"author":1,"featured_media":13874,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[32,50,180,69,33,407,397,70,343,11],"tags":[],"class_list":["post-5406","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-value-investing","category-benjamin-graham","category-cash-flow","category-discipline","category-growth-investing","category-interest-rate","category-margin-of-safety","category-patience","category-stock-valuation","category-buffett"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/5406","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=5406"}],"version-history":[{"count":14,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/5406\/revisions"}],"predecessor-version":[{"id":13876,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/5406\/revisions\/13876"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/13874"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=5406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=5406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=5406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}