1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Vitaliy Katsenelson
Articles (1327) 

The 6 Commandments of Value Investing No. 4 - Margin of Safety: Leave Room in Your Buy Price for Being Wrong

Margin of safety is a function of two dimensions: a company’s quality and its growth.

May 09, 2018 | About:

Margin of safety is a function of two dimensions: a company’s quality and its growth.

I am generalizing here, but exogenous events have a greater impact on a lower-quality business than a higher-quality one. Thus a high-quality company needs a lower margin of safety than a lower-quality one.

A company that is growing earnings and paying dividends has time on its side and thus may not need as much margin of safety as a lower-growing one.

We quantify both a company’s quality and growth, and thus margin of safety is deeply embedded in our investment operating system.

The larger discount to the stock’s fair value (the $1), the less clairvoyance you need to have about the future of the business. For instance, in 2013, when Apple (NASDAQ:AAPL) stock was trading at $400 (pre-split) we didn’t have to have a very clear crystal ball about Apple’s future; Apple just had to be able to barely fog the mirror. In later years, at $900, we need to have a lot more precision in our analysis of Apple’s future.

I am the CIO at Investment Management Associates, which is anything but your average investment firm. (Seriously, take a look.)

I wrote two books on investing, which were published by John Wiley & Sons and have been translated into eight languages. (Polish is one of them – go figure.)

In a brief moment of senility, Forbes magazine called me “the new Benjamin Graham.” (They must have been impressed by the eloquence of the Polish translation.)

Rating: 0.0/5 (0 votes)


Please leave your comment:

Performances of the stocks mentioned by Vitaliy Katsenelson

User Generated Screeners

DBrizanTAM 21May2018 536p
DBrizanTAM 21May2018 454p
DBrizanTAM 21May2018 426p
Nightdoc2Basic Screen
aboer52AB up sel 1
aboer52AB up Warn<=2 Op Margin >=80%%
HOLKLSUTop 20 Group Trending Sectors
vishnu88Smead USA
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat