Price vs. Value — The Most Important Distinction in Investing

What if the price of something had almost nothing to do with its actual worth? In most markets, price and value are tightly linked. In stock markets, they can diverge wildly — and that divergence is where investing begins.

Why This Matters

Most people who enter financial markets think of investing as predicting where prices will go. If the price goes up, you made a good decision; if it goes down, you made a bad one. This is precisely backwards. Price is what you pay. Value is what you get. The gap between the two — not the direction of price movement — is what determines whether you have made an investment or a speculation. Benjamin Graham, the father of value investing, spent his career documenting this distinction. Markets, he observed, are driven in the short term by emotion, sentiment, and momentum. In the long term, prices converge toward intrinsic value. The investor's job is to buy when price is significantly below value — and wait.