Great investing boils down to one simple idea:
Figure out intrinsic value—and then pay a lot less.
Let’s break it down for everyday investors.
🔍 What Is Intrinsic Value?
Think of intrinsic value as what a business is really worth, based on its fundamentals.
This includes:
- How much money it makes (profits and cash flow)
- How steady or growing those profits are
- The quality of the business (brand, moat, management)
- Future growth potential
It’s like figuring out the fair price of a car based on mileage, condition, and model—not just what the sticker says.
🛍️ Why “Pay a Lot Less”?
Because margin of safety matters.
Markets go up and down. Even great companies hit rough patches. By paying well below intrinsic value, you give yourself:
- Room for error if your estimate is off
- Protection against bad news or downturns
- Higher returns when the stock eventually reflects its true worth
It’s like buying a $1 bill for 70 cents. You’re stacking the odds in your favor.
🧠 A Buffett Principle
Warren Buffett follows this to the letter:
“Price is what you pay. Value is what you get.”
He and Charlie Munger spent their careers calculating value—then waiting patiently to buy when the market offered bargains.
🧰 How to Apply This
You don’t need to be a math genius. Start with these steps:
- Understand the business – How does it make money? Is it predictable?
- Estimate future earnings – Are they growing? Steady?
- Discount those earnings – Bring future value into today’s dollars
- Compare to the market price – Is it on sale, or overpriced?
And if the math gets tricky, remember: simplicity wins. Focus on businesses you can understand.
💡 Why It Matters
Paying too much—even for a great company—can lead to poor returns.
But buying a good business at a cheap price? That’s where the magic of investing lives.
Bottom line:
The secret isn’t timing the market. It’s valuing the business—and being patient until the price is right.