|
|
Margin of safety |
|
|
|
 Home Site Map Add Term Search About Us Contributors |
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 MatchesGross profit marginGross profit marginGross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. Buy on marginBuy on marginBorrowing to buy additional shares, using the shares themselves as collateral. Effective margin (EM)Effective margin (EM)Used with SAT performance measures, the amount equal to the net earned spread, or margin of income, on assets in excess of financing costs for a given interest rate and prepayment rate scenario. Undermargined accountUndermargined accountA margin account that no longer meets minimum maintenance requirements, requiring a margin call on the investor. Marginal efficiency of capitalMarginal efficiency of capitalThe percentage yield earned on an additional unit of capital. Further SuggestionsMarginal revenueInitial margin requirement margin call Contribution margin Operating profit margin Maintenance margin Marginal propensity Profit margin operating margin marginal tax rate Margin requirement (options) Profit margin Value marginal product Dumping margin Margin trading Marginal tax rate Marginal rate of transformation margin Net profit margin Marginal propensity to import Marginal revenue product Margin initial margin Initial margin Marginal value product |
|
|
|