Mr. Seth Klarman, a known value investor stated “In capital markets, price is set by the most
panicked seller; value, which is determined by cash flows and assets, is not. This is both the
challenge and the opportunity of investing: to carefully sift through the markets to find the
greatest divergence between price and value, and to concurrently avoid the extreme emotions
of the crowd and, indeed, to take a stand against them.” Warren Buffett is also known to state
frequently “Price is what you pay and Value is what you get.”
Price and value are two different concepts in investing. While price is available from the stock
market and known to all, value is based on the evaluation and analysis of the valuer at a point
in time. There is no formula or method to put to throw a precise number on valuation of an
asset. There are uncertainties associated with the inputs that go into the valuation process. As a
result, the final output can at best be considered an educated estimate, provided adequate due
diligence associated with valuing the asset has been complied with. That is the reason,
valuation is often considered an art as well as a science. It requires the combination of
knowledge, experience and professional judgment in arriving at a fair valuation of any asset.
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