Share Price Don't Matter. Look At This Instead.

When most people start investing, very often, they make their decision based on share prices alone.

"It was at $80, now it is at $40! IT IS CHEAP!"

Now, that's rubbish.

Just because prices have dropped - it doesn't mean it is worth buying.

The next day, I told you, I will cut my price to $5000.

Would you tell me, "Thanks Gin! I will take up your offer!"

Seriously?

Would you pay $5000 for a phone? 

Personally, I don't care if the share is $10 or $100.

It can even be $1000.

My decision to invest depends on how much the company is worth.

If the company is worth $10,000 - I wouldn't mind paying $1000 for it.

But if a company is only worth $1 - then I would never pay $10 for it.

Why Share Prices Don't Matter

Most beginner investors, when they are thinking about investing - they will immediately look at the share price first.

If they happened to look at "Google" for example - the price is in the $1000 range.

Their first thought that comes to mind?

"Omg, Google is too expensive, I cannot afford it".

This is what differentiate between someone who is an investor and someone who is not.

An investor will always look at the value.

Let's put it in a simpler example.

The image below is a $10,000 worth of cash.

If I were to tell you that I am willing to give you the $10,000 in exchange for just $5,000 - what will you do?

(assume that the deal is 100% legitimate)

The answer is pretty obvious right - all of a sudden, $5000 is not expensive any more.

When we say things are expensive, we have to compare to its value.

And in this case, the value of the transaction is $10,000 - so paying $5000 is a steal.

Unfortunately, the stock market isn't so obvious to tell you how much the business is worth - which is why most investors fail in the stock market.

They buy a stock, without considering the value of the company, and because of that, they ended up overpaying for businesses...

...or in this case, paying $20,000 for $10,000 worth of cash.

"Okay Gin, that sounds great. But how do you find out how much a company is worth?"

That's exactly what this section is for - to find out how much a company is worth.

I will see you in the next chapter.

Disclaimer: Any securities or trades mentioned in this article is not a buy or sell recommendation, any form of investments have its risk and due diligence is to be performed before any investment.