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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 MatchesProfit marginProfit marginIndicator of profitability. The ratio of earnings available to stockholders to net sales. Determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage. Also known as net profit margin. 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). Variation marginVariation marginProfits and losses on open futures contracts, which are revalued daily at the settlement price, which are subsequently paid to or received from the clearing house. MarginMarginThe difference between the cost price of a product and the selling price.In trading, the amount deposited with a broker in order to obtain credit for purchase of shares or futures. The margin is the price of a security less credit advanced by the broker.The difference between a market maker's buying and selling prices. Also known as spread. Marginal propensityMarginal propensityThe fraction of a change in income devoted to an activity, such as consumption, importing, or saving. See propensity. Further SuggestionsMargin securityMarginal utility Marginal propensity to import Contribution margin marginal tax rate Profit margin Margin requirement Marginal rate of substitution Maintenance margin profit margin Marginal tax rate Marginal propensity to consume Marginal value product Effective margin (EM) margin account Marginal revenue product Marginal revenue Net profit margin Value marginal product Marginal cost gross margin margin securities Unmargined account Marginal efficiency of capital Dumping margin |
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