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Price Is What You Pay, Value Is What You Get

beginner6 min read

The most important distinction in investing — and where all your edge comes from.

Price is the number on the screen — what the market is asking today. Value (intrinsic valueWhat an asset is really worth, based on its fundamentals.) is what the business is actually worth based on the cash it willArranging how your wealth passes on after death. generate over its life. They are not the same thing, and the gapA jump between one bar’s close and the next bar’s open. between them is the entire source of an investor’s profit.

If price always equalled value, investing would be pointless — you’d never get a bargain. Your edgeA repeatable, structural reason your trades win over time. comes precisely from the moments Mr. Market’s price wanders away from value: buy when price is well below value, and let the gapA jump between one bar’s close and the next bar’s open. close in your favour. Everything in this module exists to estimate that value.
AnalogyA ₹1 crore flat that rents for ₹8 lakh/year has a value rooted in that income. If a panicked seller offers it for ₹70 lakh, the price fell but the value (the rent it throws off) didn’t. That gapA jump between one bar’s close and the next bar’s open. is the opportunity.
Common mistake“The price went up, so it’s more valuable.” Price and value move independently in the short run. A soaring price can take a stock far ABOVE its value (dangerous); a crashing price can drop it far below (opportunity).
Key takeawayPrice is what the market asks; value is what the business is worth. Profit comes from buying when price sits well below value.
FAQs
How is intrinsic value different from market cap?

Market cap is just price × shares — the market’s current quote. Intrinsic value is your independent estimate of what the business is truly worth (based on its future cash flows). Investing is the art of buying when market cap is below your estimate of intrinsic value.