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Margin of safety |
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Margin of safetyThe term given by Benjamin Graham, 'the father of value investing', to the idea that if you buy shares for less than two thirds of their net asset value, you automatically have a cushion against any deterioration in the company's trading position in the future. Put another way, 'buy cheap'.Graham's view was that it is extremely difficult to accurately predict a company's future earnings. For an investment to be 'safe', therefore, he liked to see a margin between the value of its net current assets and its share price. If the share price was below the net current assets divided by the number of shares in issue, he would consider buying it.One of the problems with Graham's approach is that in bull markets it is very difficult to find companies that fulfil his criteria. A second problem is that many of the fastest growing companies in modern economies are those whose assets are intangible - for instance, the value of their intellectual property. Under the Graham rubric, these sorts of assets would be excluded.Margin of safetyWith respect to working capital management, the difference between (1) the amount of long-term financing and (2) the sum of fixed assets and the permanent component of current assets.Margin of safety Similar MatchesOperating profit marginOperating profit marginThe ratio of operating profit to net sales. Marginal propensity to consumeMarginal propensity to consumeThe fraction of a change in income (or perhaps disposable income) spent on consumption. Contrasts with average propensity to consume. Marginal propensity to saveMarginal propensity to saveThe fraction of a change in income (or perhaps disposable income) that is saved. MarginMarginAllows investors to buy securities by borrowing money from a broker. The margin is the difference between the market value of a stock and the loan a broker makes. Related: Security deposit (initial). Unmargined accountUnmargined accountA cash account held at a brokerage firm. Further SuggestionsMargin requirement (options)Marginal revenue Margin security Contribution margin Gross profit margin initial margin Maintenance margin Marginal value product Buy on margin Marginal cost Marginal efficiency of capital gross margin Margin requirement Profit margin Value marginal product Marginal Net profit margin margin call Effective margin (EM) operating margin margin Original margin Marginal tax rate profit margin margin account |
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