Warren Buffett's most quoted line about price and quality has rarely been more relevant for ASX shares than it is right now.
The Berkshire Hathaway chairman has long argued that:
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Image source: Motley Fool Editorial
What the quote really demands from ASX shares
Buffett's point is not that cheap companies are bad investments.
It is that quality and price are two separate questions, and both have to be accounted for properly.
A wonderful company bought at any price is not automatically a good outcome. But a struggling company bought cheaply is not automatically a bargain either.
Three of the most widely held ASX shares illustrate that tension.
Commonwealth Bank: a wonderful company at a difficult price
Commonwealth Bank of Australia (ASX: CBA) delivered FY26 cash net profit after tax of $10.98 billion, up 7% on FY25.
Statutory net profit rose 8% to $10.91 billion. Return on equity improved 50 basis points to 14.0%. What's more, the board declared a fully franked final dividend of $2.70 per share, taking the full-year payout to $5.05.
The operational detail is perhaps even more impressive than the headline.
CBA grew at or above system across all five core domestic product categories.
The bank says that this is a first for CBA, and the first time any major Australian bank has managed it in 15 years.
By almost any operational measure, this is a wonderful company.
The complication is the price you pay for it. At current prices, CBA shares screen as overvalued.
Any other ASX shares that fit the bill?
CSL Ltd (ASX: CSL) and Cochlear Ltd (ASX: COH) present something close to the mirror image.
Both report FY26 results next week, on 17 and 18 August respectively. Both have been savaged by the market this year.
CSL cut its FY26 guidance in May to roughly US$15.2 billion of revenue and about US$3.1 billion of NPATA in constant currency.
The company also flagged around US$5 billion in non-cash, pre-tax impairments across FY26 and FY27, largely tied to CSL Vifor intangibles.
For its part, Cochlear reduced FY26 underlying net profit guidance in April to $290 million to $330 million, down from $435 million to $460 million.
Cochlear shares fell more than 40% in a single session on that announcement, the worst one-day decline in the company's history.
The trap hiding inside cheap ASX shares
This is where Buffett's discipline earns its keep.
Cochlear still holds roughly half the global cochlear implant market.
CSL still operates one of the world's largest plasma collection networks, with hundreds of collection centres across three continents.
Those competitive moats have not vanished, but what has changed is earnings visibility, and visibility is what a lower price is supposed to compensate you for.
The uncomfortable answer is that nobody yet knows whether these are wonderful companies at newly fair prices or fair companies whose quality was overestimated.
Both need to demonstrate the downgrades were cyclical rather than structural.
Foolish takeaway
Buffett's line is most often wheeled out to justify paying a premium for quality.
Read carefully, and the quote can be interpreted in the opposite way.
Applied to these three ASX shares, CBA is largely a price question, and CSL and Cochlear are quality questions.
CBA has proven what it can earn, and investors must decide what that stream is worth.
CSL and Cochlear have not yet proven their earnings power is intact, which is why they look cheap.
Next week's results will tell us considerably more about the latter two.
I would want to see those numbers before deciding which half of Buffett's sentence either company belongs in.
