Whatever its share price or market cap might deceptively suggest, a company's actual value rarely appears in stock listings.
As Warren Buffett's mentor, Benjamin Graham, wrote: "In the short run the market is a voting machine. In the long run it's a weighing machine." In other words, there are really two prices for a company or stock at any one time: the market price, and the actual, intrinsic price.
Charles Brandes of Brandes Investment Management recently recalled what Graham taught him: "Stock prices and bond prices fluctuate in value a lot more than the actual underlying value of the security that you own. The reason for that is fear and greed, human behavior."
Don't get confused
Losing sight of this concept can mess with your investing. You might avoid certain volatile stocks, thinking that the companies' values are too volatile. But as Graham taught, the companies themselves are not changing in value -- only their stock prices are.
Though many investors thought Ford was destined for bankruptcy, I don't think the value of Ford's physical, financial, and intellectual assets truly moved that much in such a short time. The company did face major challenges, but lately it's been grabbing market share, and it's profited from Toyota's
Then there's long-beleaguered Rite Aid
Volatility viewed properly
Remember, a volatile stock price has nothing to do with a company's real value. Don't be afraid of wildly swinging share prices; when they plunge, they can offer great opportunities to buy solid enterprises that are temporarily out of favor.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Ford Motor is a Motley Fool Stock Advisor recommendation. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.