Module 1 · Price Is Not Value Foundation

The single most common beginner mistake in investing is thinking a low share price means “cheap.” Undo that in the next ten minutes and everything else in this course gets easier.

The $500-vs-$50 illusion

Ask a new investor which is “bigger” or “cheaper” — a $500 stock or a $50 stock — and most will answer instantly. The honest answer is that the question can't be answered from price alone, because a share price is just the price of one slice of a company, and companies are cut into wildly different numbers of slices.

Take two companies:

The “expensive-looking” $500 stock is the smaller company — a tenth of the size. Which is “cheaper”? Still unanswerable, because we haven't looked at what either business actually earns. Price per share is an artifact of how many pieces the pie was cut into, nothing more.

Market capitalisation: the price of the whole company

Market capitalisation (“market cap”) is the price the market puts on the entire equity of a business:

It is the first number that actually means something, because it is comparable across companies regardless of their share price. A $12 stock and a $1,200 stock can have the exact same market cap. Market cap is how we sort companies into large-, mid- and small-cap buckets, and it is the denominator (or numerator) of most of the ratios you'll meet in Module 3.

One subtlety we'll lean on later: always use diluted shares — the count that includes stock options and other claims that will become shares. Management is often paid in options, and ignoring them flatters every per-share number.

Market cap vs enterprise value

Market cap prices the equity, but when you buy a whole business you also inherit its debts and pocket its cash. Enterprise value (EV) captures that:

EV is the “true takeover price.” Imagine buying a house listed at $600,000 that comes with a $200,000 mortgage you must assume and $50,000 in cash left in a safe inside. Your real cost of control is $600,000 + $200,000 − $50,000 = $750,000. Companies work the same way.

Why does this matter for valuation? Because debt and cash distort any comparison based on equity alone. A company that looks cheap on market cap might be carrying a mountain of debt that makes it expensive to actually own. EV is what powers the capital-structure-neutral multiples (like EV/EBITDA) you'll use in Module 3, and it's the endpoint of the DCF you'll build in Module 6.

Stock splits change nothing that matters

When Apple did a 4-for-1 split in 2020, every holder woke up with four times as many shares at one-quarter the price. When Tesla split 3-for-1 in 2022, same story. Nothing about either business changed: not revenue, not profit, not the value of your holding. A split is making change for a dollar — four quarters instead of one, still a dollar.

The reverse is also true. Berkshire Hathaway's “A” shares trade for hundreds of thousands of dollars each purely because Warren Buffett never split them. That eye-watering price says nothing about whether Berkshire is expensive; it's the same company whether it's quoted as one $600,000 share or 600,000 one-dollar shares. Judging “expensive” by the per-share sticker is the beginner's tell.

Price is what you pay; value is what you get

Here is the mental model the entire course rests on. Price is what the market quotes right now — a number set by the last trade between a nervous seller and an eager buyer. Intrinsic value is your own estimate of what the business is fundamentally worth, based on the cash it can generate and the assets it holds. The two are related but distinct, and the gap between them is where investing returns come from.

Benjamin Graham — Buffett's teacher — put it best: in the short run the market is a voting machine, tallying popularity and fear; in the long run it is a weighing machine, settling on the real economic weight of the business. Sentiment moves prices day to day. Fundamentals move them over years. Valuation is the discipline of estimating that long-run weight so you can act when the daily vote gets it badly wrong.

The three families of valuation

Every method you'll learn belongs to one of three families. Professionals don't pick one — they triangulate across all three and pay attention when the answers disagree.

• Intrinsic value — discount the cash a business will hand its owners back to today's dollars. This is the discounted cash flow (DCF, Modules 6–7) and the dividend discount model (DDM, Module 5). The most rigorous, and the most sensitive to your assumptions.
• Relative value — compare a company's multiples (P/E, EV/EBITDA, and friends) to its own history and to peers. Fast, intuitive, and the fastest way to fool yourself (Modules 3–4).
• Asset-based value — what are the company's assets worth, net of what it owes? Book value, net-net, the Graham Number, Earnings Power Value (Module 8). Dominant for financials, asset-heavy firms, and distressed situations.

The rest of this course is a guided tour of those three families, when each applies, and how to combine them into a defensible fair-value range with a margin of safety. Next up: where every number these methods need actually lives — the three financial statements.