Price vs. Intrinsic Value

Price is what you pay; value is what you get. Intrinsic value is an estimate of what a business is really worth, and the gap between that and the price is where investing decisions are made. Here is how to think about it and why a margin of safety matters.

Two different numbers

The stock price changes every second, driven by news, emotion and flows of money. Intrinsic value, what the business is actually worth based on its future cash, changes slowly. In the short run the two can drift far apart. Over long periods, prices tend to follow the business’s results.

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