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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 MatchesMarginal value productMarginal value productThe value of the marginal product of a factor in an industry; that is, the price of the good produced times the marginal product. Determines factor prices when all markets are competitive. 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. Maintenance marginMaintenance marginThe dollar amount required to be kept at the OCC throughout the life of an option OCC; percentage of the dollar amount of OCC that must always be kept as OCC. Initial marginInitial margin(1) Amount of money deposited by both buyers and sellers of futures contracts to ensure performance of the terms of the contract; (2) amount of cash or eligible securities required to be deposited with a broker before engaging in margin transactions. Operating profit marginOperating profit marginThe ratio of operating profit to net sales. Further SuggestionsOTC margin stockMarginal rate of transformation Dumping margin Value marginal product variation margin initial margin operating margin Marginal utility Marginal propensity Initial margin requirement Original margin profit margin Margin requirement Gross profit margin Net profit margin Marginal propensity to import Margin account (stocks) margin securities Marginal Marginal tax rate Effective margin (EM) Margin trading Marginal product Margin gross margin |
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