Why price still matters, even for great companies

Summary: When a high-quality company is trading at a premium, overpaying for it may appear justified. However, it gradually eating away at your returns. Here’s why. Once you start liking quality businesses, it’s tempting to believe that you can pay almost any price for them. The story feels so strong that valuation becomes an afterthought. We’ve heard this many times: “It’s a great company, I don’t mind paying a bit extra.” The trouble is that ‘a bit extra’ can quietly turn into ‘far too much’, and even a wonderful company bought at a silly price can be a disappointing investment. Think of valuation as the link between a business and your personal return. The company’s job is to grow its earnings and cash flows over time. Your job is to make sure you don’t pay so much for that growth that even good performance translates into poor returns. Price does not change what the business is, but it does change how much of the future you are prepaying today. Consider a simple thought experiment. Imagine the same company, Hindustan Unilever, trading at two different valuations in two different years. In 2011, it traded at around Rs 340 per share, roughly 29 times its earnings. In 2016, after a lot of excitement and strong past performance, it traded at about Rs 857, which works out to almost 46 times earnings. Over the next 10 years, suppose the comp

This article was originally published on January 13, 2026.