Margin of safety

 

Home
Site Map
Add Term
Search
About Us
Contributors

Margin of safety

The 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 safety

With 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 Matches

Gross profit margin

Gross profit margin

Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold.


Buy on margin

Buy on margin

Borrowing 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 account

Undermargined account

A margin account that no longer meets minimum maintenance requirements, requiring a margin call on the investor.


Marginal efficiency of capital

Marginal efficiency of capital

The percentage yield earned on an additional unit of capital.


Further Suggestions

Marginal revenue
Initial 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


 
All rights Reserved. Do not copy without permission.