Margin of Safety Investing Strategy
Margin of Safety is one of the most trusted investing strategies, made popular by highly successful investors like Warren Buffet. The term – margin of safety – was coined by the father of value investing, Benjamin Graham, in 1934. The basic idea of this strategy is to buy low and sell high.
Every stock has an intrinsic value or true work. Any up or down price deviation from this intrinsic value is just deviations, and the stock price ultimately reaches its intrinsic value. Investors can assign a margin of safety with respect to the predicted intrinsic value of the stocks, usually the margin of safety 30 or 40% of the intrinsic value –more the percentage more the chance of profit and low the risk. Investors can buy stocks when they fall below margin of safety and sell them when they move above their intrinsic value.
Margin of safety investing strategy minimizes the downside risk as it offers a margin rather than a fixed price. But the prediction of intrinsic value is the most difficult task; investors have to develop their own strategies for this. Investors can use various value analysis tools for this purpose like P/E ration, book value, asset to liability ratio, investments in other companies, etc for this purpose.
Every stock has an intrinsic value or true work. Any up or down price deviation from this intrinsic value is just deviations, and the stock price ultimately reaches its intrinsic value. Investors can assign a margin of safety with respect to the predicted intrinsic value of the stocks, usually the margin of safety 30 or 40% of the intrinsic value –more the percentage more the chance of profit and low the risk. Investors can buy stocks when they fall below margin of safety and sell them when they move above their intrinsic value.
Margin of safety investing strategy minimizes the downside risk as it offers a margin rather than a fixed price. But the prediction of intrinsic value is the most difficult task; investors have to develop their own strategies for this. Investors can use various value analysis tools for this purpose like P/E ration, book value, asset to liability ratio, investments in other companies, etc for this purpose.
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posted by Daniel Pipitone at
4:55 AM
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