Value Is Not "Cheap" — It Means Underpriced

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett

Early value investing chased "cigarette butts" — beaten-down stocks trading below book value, good for one last puff. Buffett rewrote that rule.

His insight was to pay up for quality when the competitive moat is wide and the growth runway is long. The price you pay sets your starting return. The business you own decides whether it keeps compounding for five years — or fifty.

So "value" does not mean "cheap on the screen". It means the price is below what the business is actually worth. A statistically cheap company with no durable advantage can stay cheap forever; a fairly priced franchise can compound for decades.

Illustrative example: Coca-Cola (1988)

Buffett paid around 15 times earnings — expensive by the old Graham yardstick. The brand's pricing power and global reach then compounded for decades, and the position went on to return many times the original outlay. The point is the quality and the holding period, not the specific number.