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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 MatchesOTC margin stockOTC margin stockShares traded over-the-counter that can be used as margin securities under Regulation T. Margin requirementMargin requirementA performance bond paid upon purchase of a futures contract that protects the exchange clearinghouse from loss. Margin accountMargin accountAn account with a broker where a client is able to purchase securities on credit after margin has been deposited. Margin securityMargin securityA security that may be bought or sold in a margin account as defined in Regulation T. 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. Further Suggestionsmargin securitiesMarginal propensity to import Profit margin Contribution margin Marginal cost operating margin Buy on margin Marginal efficiency of capital Net profit margin Marginal propensity Marginal propensity to save Marginal value product Margin Marginal propensity to consume Maintenance margin Dumping margin Marginal rate of transformation variation margin Marginal rate of substitution Margin trading profit margin Marginal marginal tax rate Marginal tax rate Operating profit margin |
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