Price and value

Can’t tell you how often I read / hear brokers say “Values are really going up in X neighborhood”. This drives me crazy. Why?

What those brokers mean is that they have examined recent sales and concluded that prices are going up. A price is the amount of money someone pays for something. It’s objective; a number.

But price is not equal to value. Value is, basically, “what something is worth to you”.

Notice the “to you” part. Value is subjective. Very often, things are worth more, or less, to me than they are to others.

Investing is about:

  • Finding an asset you can buy for a price which is materially less than the value of that asset to you; and
  • Avoiding buying assets where that margin of safety / profit doesn’t exist

This is why I don’t really care about comps and I get angry when brokers try to use them to convince me to buy something (“this is priced at $350 / ft, when the comps show $375”).

Why should I care what prices other people paid? Other people value assets differently (this is the charitable way to look at it!).

I only care about the relationship between the price and my conception of value.