This simple concept means that the business buyer will purchase a company in whole or part (shares) only when the price of the business is below a conservative evaluation of the estimated range of the true underlying value of the enterprise.
This allows the investor to achieve two goals: first and most importantly, to protect capital. Paying such a price means the investor is naturally less likely to suffer a lose of capital. Successful business owners are usually very conscious of never overpaying for any input to their business or in buying other companies. Secondly, paying a bargain price for a wonderful business enhances the return generated by that business, in exactly the same way that buying a bond below issue price will increase the coupon to the debt holder. The end result: high returns and lower risk – the ideal objective of intelligent investing.