Principle 10 of 11
Price vs. Value: What You Pay vs. What You Get
Expensive isn't always valuable. The price is what you pay; value is what you get.
Price vs Value in one sentence
Price is the number you pay for something; value is what that thing is actually worth to you — and the two are not always the same.
A pair of sneakers can cost $200 and fall apart in six months. Another pair can cost $60 and last two years. The price tag alone doesn't tell you which one is the better deal. Investing works the same way.
Example: the "expensive" share that isn't
Many people think a $400 share must belong to a bigger, more valuable company than a $20 share. Not necessarily! What matters is how many shares the company is split into. Here are two made-up companies:
| Price per share | Number of shares | Total value of the company | |
|---|---|---|---|
| Company A | $400 | 10 million | $4 billion |
| Company B | $20 | 500 million | $10 billion |
Company A: $400 × 10,000,000 = $4,000,000,000 · Company B: $20 × 500,000,000 = $10,000,000,000
Company B has the "cheaper" share, but the whole company is worth more than twice as much. A share price is just one slice — you have to know how many slices there are.
Investors also compare price to what you get for it. Suppose one share costs $20 and the company earns $1 per share each year. Another share costs $50 and earns $5 per share each year. The first gives you 5¢ of yearly earnings for every $1 you pay ($1 ÷ $20). The second gives you 10¢ for every $1 ($5 ÷ $50). The pricier share is the better value in this example.
Why it matters
Understanding the difference between price and value protects you from two traps: thinking something is a bargain just because the number is small, and thinking something is great just because it is expensive or popular.
It also helps during market drops. If a business is still healthy but its price falls because everyone is scared, the price went down but the value may not have. Thinking about value is how investors stay calm when prices swing.
Common mistake: "It's only $2 a share, so it's cheap!"
A low share price does not mean a good deal. A share can cost $2 because the company is struggling, or simply because it is split into a huge number of shares. "Cheap" only means something when you compare the price to what the business actually earns or owns.
Check yourself
1. A company has 2 million shares priced at $30 each. What is the whole company worth?
Show answer
$60 million, because 2,000,000 × $30 = $60,000,000.
2. Does a higher share price always mean a bigger company?
Show answer
No. Total value depends on price per share times the number of shares.
3. Share X costs $40 and earns $2 per share a year. Share Y costs $10 and earns $1. Which gives more earnings per dollar paid?
Show answer
Share Y. X gives $2 ÷ $40 = 5¢ per dollar; Y gives $1 ÷ $10 = 10¢ per dollar.
Try it: Price is Right
Price is Right is a Daily Challenge game where you guess what one share of a famous company costs — then learn what that share really is. Price is Right is all about share prices — use it to practice remembering that a price tag is not the same as what a business is worth.
Learn one of these every morning
Market Juice is a free daily digest for kids ages 10–16: real market news, three quick games, and a lesson that ties back to these principles — about 3 minutes a day.