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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 tax rateMarginal tax rateThe tax rate that would have to be paid on any additional dollars of taxable income earned. Marginal rate of transformationMarginal rate of transformationThe increase in output of one good made possible by a one-unit decrease in the output of another, given the technology and factor endowments of a country; thus the absolute value of the slope of the transformation curve. Marginal revenueMarginal revenueThe change in total revenue as a result of producing one additional unit of output. Marginal propensity to saveMarginal propensity to saveThe fraction of a change in income (or perhaps disposable income) that is saved. Unmargined accountUnmargined accountA cash account held at a brokerage firm. Further SuggestionsMarginMargin security Margin account (stocks) Marginal propensity Contribution margin Buy on margin Net profit margin Marginal value product Original margin Value marginal product Undermargined account Gross profit margin gross margin Marginal propensity to consume Margin Marginal propensity to import Margin requirement margin account Maintenance margin Marginal cost Marginal product Profit margin Effective margin (EM) variation margin marginal tax rate |
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