Have the Discipline to Say No 129a lower stock price increases the dividend yield. Emotional habits
can be quite expensive over time. In investing, the starting point
of every investment is signifi cant. An additional 2 to 3 percentage
points per annum earned on an equity portfolio over a 20 - year
investment horizon add an additional 45 to 73 percent to the nest
egg at the end of the 20 - year period. A little means a lot.
The concept of price paid and value received in investing
deserves a greater degree of signifi cance than many other concepts
because it is so easily misunderstood. Unlike the concept of margin
of safety, which is relatively straightforward, the concept of price
versus value can be misinterpreted easily. All too often, a dispropor-
tionate amount of attention is focused on the price aspect and not
the value aspect. Comparing two similar businesses, many investors
automatically presume the one with the lower stock price to be the
one offering the greater value. Such blanket assumptions require
investors to exert even more effort when comparing price paid to
value received; otherwise, they fear that they might make expensive
errors.
When Ben Graham was teaching his investing course at
Columbia University in the 1950s, he used a brilliant form of
instruction to illustrate relationship between price and value. He
often took two consecutive securities from the stock tables and ana-
lyzed the fundamentals. This method proved to be an effective tool
for illustrating the price/value relationship. Of signifi cant impor-
tance is the inaccurate notion that a lower absolute price automati-
cally equates to a better value.
Let ’ s borrow a page from Graham ’ s instruction method and
consider two companies in the energy sector, shown in Table 7.1.
As of this writing, ConocoPhillips was trading for $ 52 a share
and traded as high as $ 95 a share in 2008, while Cabot Oil and Gas
traded for $ 26 a share and $ 72 a share at its peak in 2008. Eager
investors may look at Cabot ’ s price relative to its all - time high and
determine that the possible resurgence to the previous high priceCH007.indd 129CH007.indd 129 9/2/09 11:47:22 AM9/2/09 11:47:22 AM