I caught up with a friend this past week. He’s considering making an investment. He shared his thinking and asked me if I thought it was a good investment.

I told him I had no idea. Partly this was because I’m unfamiliar with the asset class, but more fundamentally it was because he said nothing about what he thinks the asset is worth today. I heard only about the price the seller wants.

Investing, in my opinion, is all about buying something for less than it’s worth. An important distinction is between price and value. Price is what you pay for the asset. Value is what you get. If you pay more than the asset is worth, it’s not such a great investment. To be a good investor, you have to be able to use your judgment to determine an asset’s value. There are lots of ways to do that. But if your analysis is thorough and you buy for less than value…you have a good chance of making a good investment.