Explaining the core of value investing — the difference between price and value.

This simple distinction separates investors from speculators. Price is a number on a screen, subject to mood swings of millions of market participants. Value is the present worth of all future cash flows a business will generate. Buffett learned this principle from Benjamin Graham and has applied it for over six decades. The magic happens when you can buy dollar bills for fifty cents — when market price diverges significantly from intrinsic value.

In today's market, where algorithmic trading and momentum strategies dominate short-term price movements, understanding the price-value gap is more critical than ever. Many investors confuse a rising stock price with increasing value, when the opposite is often true.

Before buying any stock, calculate a conservative estimate of intrinsic value using discounted cash flow or owner earnings. Only buy when there is a significant margin of safety between price and your calculated value. Ignore daily price fluctuations unless they present buying opportunities.