📖Benjamin Graham

Margin of Safety

🌳 Advanced★★★★★

Your margin of safety is entirely determined by how far below intrinsic value you purchase an asset.

💬

The margin of safety is always dependent on the price paid.

— _The Intelligent Investor_，1949

🏠 Everyday Analogy

Just as you would negotiate the price when buying a house—if a house is worth 1 million, buying it for 800,000 gives you a 200,000 cushion—the same applies to stocks. If a stock has an intrinsic value of 100 yuan, buying it at 60 yuan provides a 40-yuan margin of safety. Even if there are errors in valuation, you are less likely to lose money.

📖 Core Interpretation

The margin of safety is a core concept of value investing, representing the gap between the purchase price and the intrinsic value.
💎 Key Insight：The margin of safety is Graham's single most important concept. It provides a buffer against analytical errors, unforeseen events, and bad luck. The lower the price relative to calculated value, the wider the margin. Never confuse a quality company with a safe investment; safety is always a function of price.

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❓ Why It Matters

The margin of safety protects you from analytical errors, unforeseen events, and market fluctuations.

🎯 How to Practice

Only purchase when the price is significantly below the estimated value; the greater the gap, the higher the margin of safety.

🎙️ Master's Voice

Analysis connotes the careful study of available facts with the attempt to draw conclusions therefrom based on established principles and sound logic.
Graham defined security analysis as rigorous, fact-based study. It was not guessing or following tips—it was disciplined investigation.

⚔️ Practical Guide

✅ Decision Checklist

  • Am I doing careful analysis?
  • Am I using facts?
  • Is my logic sound?

📋 Action Steps

  1. Study available facts carefully
  2. Use established principles
  3. Apply sound logic

🚨 Warning Signs

  • Guessing
  • Ignoring facts
  • Poor logic

⚠️ Common Pitfalls

✕Intrinsic value is difficult to calculate precisely.
✕Margin of safety is a buffer against uncertainty.

📚 Case Studies

1
GEICO Insurance (1948)
Graham made substantial purchases of GEICO when its market value was significantly below its intrinsic worth.
✨ Outcome：Achieved Exceptional Returns

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