The admonitions of Warren Buffett’s, “Price is what you pay, the value is what you get” reveals that price and value are not always the same. While the intrinsic value of a business admittedly depends on the assumptions, and it goes through narrower ranges of stock price. The investors jump on the little hike of the product price for a remarkable benefit. Sometimes they gain, sometimes, lose.
In the stock market, when huge people jump on the particular product or company share, the price value of the unit increases. Therefore, the price can vary vastly depending on the emotions of the crowd.
It is true that the reliable value-measures disclose that the price of today may have fallen down tomorrow. The market share of the day may be so low and the value measure of the next day may grow high. Sometimes, the hike of the price does not depend on the value price; it depends on how many people have shown their interest of the share. The experts explain that most investors extrapolate the present market condition thinking on the future. But in reality, the future may look much more like the past than the present. A traditional progress line may declare the growth of the market share of a company or product.
If you are an investor you may have heard the popular saying of Warren Buffett that is mentioned at the beginning of the blog. The quote says that price and value are not always the same. Again, it is not the universally proved words that all the experts of the world embrace. The present-day practitioners of the Modern Portfolio Theory and it’s efficient market hypothesis spike when they learn this kind of utterance from those of the regressions of us who hold the opposing point of view.
If you consider “what you get”, the value depends on the simplest form of present value and we depend on the future cash flow on it. The value you are about to get is variable in terms of the investment, “what you pay”. Therefore, on your investment, the value what you have got always remain in the world of impressions in intrinsic value. The amount you have got is far less erratic than “what you pay” for securities.
This unequal amalgamation of the investors makes the decisions on buying and selling and they both have been influenced by markets. The emotional change of the markets causes the exciting and fundamentally unpredictable oscillations in the market prices, even when the expected market falters over the predictions.
Let’s clarify a little. If you intrinsic value of a security is $100, it might fluctuate over a market cycle from $50 and $200 where the market falls 50% and rises 100%, however, the intrinsic value remains the same.
Therefore, before investing, you have to justify thoroughly from the ups and downs of the intrinsic value of the securities. If you need, take the support of experts, otherwise, you may lose all your investment!
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