Margin of safety - Value Investing
Benjamin Graham told that investment policy can be reduced to 3 simple words: "Margin of Safety" - the price at which a share investment can be bought with minimal downside risk.
The margin of safety price is not the same as the price that an investor calculates a share to be intrinsically worth.
Each investor may calculate the intrinsic value of a stock by using different methods and will eventually come up with a price that he or she believes that this value represents good buying value. Graham had his methods of calculating intrinsic value, Warren Buffett has his, other successful investors have theirs.
Graham acknowledges, however, that calculations may be wrong, or that external events may take place to affect the value of the share. These cannot be predicted. For these reasons, the investor must have a margin of safety, a factor that allows for these possibilities.
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