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Margin Of Safety
A principle of investing in which an investor only
purchases securities when the market price is
significantly below its intrinsic value. In other words,
when market price is significantly below your
estimation of the intrinsic value, the difference is
the margin of safety. This difference allows an
investment to be made with minimal downside risk.
The term was popularized by Benjamin Graham
(known as "the father of value investing") and his
followers, most notably Warren Buffett. Margin of
safety doesn't guarantee a successful investment, but it
does provide room for error in an analyst's judgment.
Determining a company's "true" worth (its intrinsic
value) is highly subjective. Each investor has a
different way of calculating intrinsic value which may
or may not be correct. Plus, it's notoriously difficult
to predict a company's earnings. Margin of safety
provides a cushion against errors in calculation.
A principle of investing in which an investor only
purchases securities when the market price is
significantly below its intrinsic value. In other words,
when market price is significantly below your
estimation of the intrinsic value, the difference is
the margin of safety. This difference allows an
investment to be made with minimal downside risk.
The term was popularized by Benjamin Graham
(known as "the father of value investing") and his
followers, most notably Warren Buffett. Margin of
safety doesn't guarantee a successful investment, but it
does provide room for error in an analyst's judgment.
Determining a company's "true" worth (its intrinsic
value) is highly subjective. Each investor has a
different way of calculating intrinsic value which may
or may not be correct. Plus, it's notoriously difficult
to predict a company's earnings. Margin of safety
provides a cushion against errors in calculation.