Don’t Compare Share Price with Share Price

Apr 28 / Cayden Chang

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The first thing you need to understand is this: Never compare a share price with another share price. Let me explain.

Let’s say you bought a stock at $6, and now it has dropped to $3. What do most traders or speculators do? They compare today’s share price with yesterday’s. So from $6 to $3, they think, “Oh no, I’ve lost $3!” That’s a 50% loss, right?

Because they’re comparing share price to share price, how do they feel? Positive or negative? Of course—negative. What do they do next? They cut loss.

But what does "cut loss" really mean? It’s like saying your finger is bleeding, so you cut off your whole hand. Why? Just because they compare price to price.

So the real question is: if we don’t compare today’s price to yesterday’s price, what should we compare it to?

As value investors, we compare the share price to its intrinsic value.

Of course, in order to do this, you must first know how to calculate intrinsic value. If you don’t know how, then what are you even comparing it against? That’s why joining a class, being part of a cohort, and engaging in lifelong learning is so important—because you learn how to do these calculations properly.

Let me move on to another key concept. This one is important—take a photo if you want to remember it:

Share price can drop. Intrinsic value may not.

Now, if the intrinsic value drops, what does that mean? It means that the company is becoming less and less valuable. On the other hand, if intrinsic value increases, the company is becoming more valuable.

So what happens to the share price when intrinsic value changes?

When a company becomes more valuable, the share price will eventually go up.

When a company becomes less valuable, the share price will eventually go down.

Here’s the critical question:

Which comes first—share price movement or change in value?

The answer of course is: The value of the company comes first!

They don’t happen at the same time. They happen in sequence. First the value changes, then the share price follows. So, if that’s the case, what should we focus on?

The value of the company - not the share price.

Let’s say this blue line represents the intrinsic value. If it stays stable, that tells you the company is solid—like a blue-chip stock. No matter what happens in the market, the company is strong and unshakable—like Vitasoy, McDonald's, or Starbucks. You can’t kill these companies; people will continue to buy their products.

So even if the share price drops during a bear market, people are still drinking Vitasoy, right? That means the value remains stable. Now imagine someone offers to sell you Vitasoy stock at $3. Because it’s a great company, that $3 is your risk.

Will the share price go to zero? Highly unlikely. It’s a strong business. Eventually, the share price will recover. When that happens, and the stock returns to, say, $10, and you sell it, how much do you make?

You bought at $3, sold at $10.
That’s a $7 gain.

So your risk is $3, and your return is $7.

What does that tell you?

Value investing is a low-risk, high-return strategy.

Please do me a favor—copy the above line somewhere and save it. This is the mindset that will guide your investing decisions.

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