“Price is what you pay.  Value is what you get,” once remarked billionaire investor Warren Buffett.  These are sage words, indeed.

Unfortunately, for most investors, they only consider price.  They ignore the value part…the cash flow – or dividend per share – that the business will generate for them as an investor.  Perhaps this is why most investors over pay when purchasing shares of a company.

Generally, most stock market investors are not really investors at all.  They’re speculators.  They only consider price.  If a stock’s price is rising they consider it a good investment.  If it’s falling, it’s a bad investment.

Then, after a stock’s price falls, speculators think it’s a buy…because of how much less it costs than just several months before.  Yet, sometimes, a stock’s price falls…and then it falls more.  Nonetheless, for investors that understand value, and what they’ll be paid to own a stock, price is considered within this context.

Following Buffett’s philosophy, investing is about maximizing the price paid for an ongoing piece of a company’s wealth stream. Continue reading →