9/13/2023 0 Comments Calculate margin of safetySimilarly, just because the price of share of stock in a company is beaten down from formerly high levels does not make it “safe” to buy. It’s just a matter of the price paid for them….Elevated popular opinion, then, isn’t just the source of low return potential, but also of high risk. But high quality assets can be risky, and low quality assets can be safe. …most investors think quality, as opposed to price, is the determinant of whether something’s risky. Many people make the mistake of assuming that buying a quality business ensures safety.Īs Howard Marks puts it best in his book The Most Important Thing… ![]() When you make an investment the laws of probability apply since the decisions involves risk, uncertainty and ignorance. That is what Ben Graham meant by having a margin of safety.You don’t try and buy businesses worth $83 million for $80 million. You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying businesses. In his speech – The Superinvestors of Graham-and-Doddsville – Warren Buffett defined margin of safety as “buying 1 dollar for 50 cents.” In theory, the further a stock’s price is below its intrinsic value, the greater the margin of safety against future uncertainty and the greater the stock’s resiliency to market downturns. Graham’s margin of safety is the difference between a stock’s price and its intrinsic value. “If you were to distil the secret of sound investment into three words”, wrote Benjamin Graham in Chapter 20 of The Intelligent Investor, “we venture the motto, MARGIN OF SAFETY.” ![]() The same ‘margin of safety’ applies even to stock market investing. You keep some extra time and money on your hand in case things do not go as planned – like if you run out of cash during your travel, or you get stuck in a traffic jam while going to the catch a train. If you answer ‘Yes’ to all or most of the above questions, you are a practitioner of ‘margin of safety’. ![]() Do you believe that prevention is better than cure?.Do you reach the railway station an hour before the scheduled departure of your train?.Do you keep extra cash (more than you will need) with you when you travel?.Before we move ahead into this lesson, just answer Yes/No to these five simple questions:
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |