Warren Buffett
Warren Buffett would have a great differentiation between price and value. After being mentored by Professor Benjamin Graham, Buffett became interested in the text Security Analysis. Graham devised an approach to identify undervalued stocks, whose prices were less than their intrinsic value. This looked at the value of the company’s assets, including cash, net working capital, and physical assets.
When looking into intangible assets, there is a differentiation between price and value. The intangible assets, including patents and trademarks, may be very valuable to a company, but they have very little impact on the price. This is because the intangible assets have little or no value under GAAP.
When Buffett looks at the price of an investment, he is focusing on the market price of the stocks. When Buffett looks at the value of the investment, he looks at multiple areas. These areas include the company’s assets, the over or undervaluation of the stock, and the intrinsic value. So the price is what you pay, and the value is what you receive.
In Buffett’s terms, if a stock you purchased at $10.00 goes up in price to $11.20, you have created value. When you divide the original book value by the new market value, the number is greater than one. This means that a $1.00 investment becomes $1.20 in market value. On the other hand, if the market value is less than the book value, then you have lost value. In these cases, the book value is the original price of the investment.