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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 MatchesMarginMarginThe 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. Marginal costMarginal costThe increase in cost that accompanies a unit increase in output; the partial derivative of the cost function with respect to output. Contribution marginContribution marginThe difference between variable revenue and variable cost. Marginal efficiency of capitalMarginal efficiency of capitalThe percentage yield earned on an additional unit of capital. Marginal tax rateMarginal tax rateThe tax rate that would have to be paid on any additional dollars of taxable income earned. Further Suggestionsmargin securitiesMarginal propensity to consume Initial margin Marginal product margin account OTC margin stock profit margin Margin security Dumping margin Undermargined account Marginal propensity to import marginal tax rate Operating profit margin Net profit margin Marginal revenue Margin Margin account (stocks) variation margin Profit margin gross margin Margin trading Marginal propensity to save Marginal rate of transformation Margin Margin requirement |
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