The Problem with Price? It’s Not Value

This chapter answers a question that is fundamental to the nature of value theory, that is, why is value important? It shows how value differs from price and explains the dangers this confusion presents to both an investor's portfolio and the health of the economic system as a whole. Price is an overrated metric. In the short term, it is neither predictable nor absolutely linked to value. Price simply reflects opinions of an asset's ability to deliver value in the future. That price is easy to measure and model does not necessarily make it helpful or explanatory in regard to understanding the nature of economic value. Value is complicated, idiosyncratic, and difficult to model, but it is fundamentally important because it is closer to economic truth than is price. Good investing means ignoring opinions and forming one's own understanding of value. Price reflects value over longer periods of time, but in short periods, price reflects many people trying to predict price.