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“You don’t drive a truck that weighs 9,000 pounds across the bridge that says ‘limit 10,000 pounds’ because you can’t be that sure about it.”
-Warren Buffett
He is referring to a specific investment principle that he considers one of his “cornerstones of investing”
[Thread]
-Warren Buffett
He is referring to a specific investment principle that he considers one of his “cornerstones of investing”[Thread]
Margin of Safety-The difference between the intrinsic value (subjective calculation of perceived value) and the current market value
-Simplified: buying a security at a price less than your valuation
-Note: there is also a different margin of safety in finance
[cont]
-Example:
You buy a share of Company XYZ at $40/share
You calculate the intrinsic value to be $50/share
Your margin of safety would be 20%
[cont]
You buy a share of Company XYZ at $40/share
You calculate the intrinsic value to be $50/share
Your margin of safety would be 20%
[cont]
-Great for minimizing downside risk
-Good idea to establish a desired margin of safety & stick to your strategy
-Beginner level: use fair value from a reputable source (Morningstar)
-Advanced level: use Discounted Cash Flow Analysis (DCFA) to calculate your own intrinsic value
-Good idea to establish a desired margin of safety & stick to your strategy
-Beginner level: use fair value from a reputable source (Morningstar)
-Advanced level: use Discounted Cash Flow Analysis (DCFA) to calculate your own intrinsic value
