This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Fear Price, Focus on Value: Whirlpool

This was originally published on RealMoney. It's being republished as a bonus for readers. For more information about subscribing to RealMoney, please click here.

You're obsessed about it. Nothing else matters. Your investing day begins and ends with worry about this particular risk. Since it is an objective measure, there is not a scintilla of room for negotiation -- a dollar is a dollar, right? To you, then, this risk trumps all others.

What is the risk I'm referring to? I call it quote risk. Quote risk is the risk that the price quote for your stock might go down. Quote risk is a worry for investors that attribute too much meaning to quotes. The typical investor puts $10,000 into a stock; when the quote drops by 30%, he announces with certitude, "I've lost $3,000."

To a value-centric investor, a price quote is a bid, an offer. That's all it is. A price quote tells you the dollar amount you can secure if you sell your property today. If you buy stock at a discount to value, it doesn't make sense to sell your property just because the offer price declines.

If you own the local car wash and someone offers you 75 cents per dollar of value, does it mean you've lost 25%? Do you call your spouse and say, "Honey, we've lost 25% of our business value today." Of course not. You received an offer. That's all. The bid doesn't come attached with a detailed appraisal of value. If you own the car wash and you're rational, you know that full and fair offers occur infrequently. If you're interested in selling the car wash, you know that you'll likely have to wait several weeks, or even several months, before you get an offer that approximates value.

To a long-term value investor, quote risk is irrelevant. I paid 40 cents per dollar of value, or $17 a share for Tecumseh Products (TECUA) Class A shares last year. A few weeks later, the quote dropped by one-half. I didn't look at the quote and exclaim, "I've lost 50% of my money!" I didn't lose anything, because I wasn't about to play giveaway. I wasn't about to accept an offer that was a tiny fraction of value.

While price eventually migrates to value, anything can happen in the short term. Chalk it up to quote risk.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TECUA $6.11 1.66%
GE $30.36 0.00%
WHR $166.29 0.00%
AAPL $117.81 0.00%
FB $105.45 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs