As investors, we tend to spend a lot of time thinking about value. Or, at least, we should.
The simple reality is that even if we buy shares in the world’s greatest business, we can still lose our shirt if we pay a stupidly high price.
But what makes a price stupid? How can we possibly know what is reasonable and what is not?
The concept of intrinsic value — defined on the basis of future cash flows — is the go-to framework for making sense of what a business is worth. It’s intellectually satisfying, mathematically rigorous, and a powerful tool to help separate price from value.
Yet, over time, I’ve become less dogmatic in its application, because value runs far deeper than cash flow forecasts. It’s a profound and slippery concept.
Value is subjective. Even if we agree on the future earnings trajectory of a business, we may still value it very differently — if only because we each have a different return threshold.
Value is relative. Maybe we both agree a stock represents value. But if I have a better opportunity elsewhere (in terms of both risk and return) and you don’t, I’ll pass while you buy.
Value is emergent. The value of a stock comes from the business. The business’s value comes from the wealth it creates for its owners. And that depends on the value it provides to customers — relative to everything else in the economy. It’s value all the way down.
Value is dynamic. What seems like good value today can be upended tomorrow if something comes along that makes a company’s product or service obsolete.
Value is qualitative. Finance and investing are numbers-heavy domains, but all the really important things can’t be captured in a number. At least, not objectively so. What is the numerical value of a good CEO or a strong brand? How do you model innovation, creativity, or adaptability?
Ultimately, value is a fluid, contextual, and psychological construct — shaped by our unique circumstances and perspectives. There is no such thing as intrinsic value, except for what we choose to define for ourselves.
None of this is to say the pursuit of value is pointless. Far from it. Identifying value is the essence of investing.
But the real skill isn’t in precise calculation; it’s in understanding what value truly is and how it might be perceived by the wider market. It’s a pursuit without a finish line, one no investor will ever fully master.
So, instead of chasing an illusion of precision, focus on the big picture. Seek businesses with strong fundamentals, durable competitive advantages, and capable leadership. Compare opportunities, weigh risks, and always leave room for surprises (both good and bad).
Investing is about playing the odds, not solving for an exact number. The real edge isn’t in knowing a stock’s “true” value, but in staying curious enough to keep searching.
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