Revisiting Margin of Safety Formula


“Take advantage of the market’s temporary insanity to load up on quality stocks at bargain prices” ~Warren Buffett

marginofsafety-4065231“Margin of Safety” formula considered as a blessing from god to the value investors through Benjamin Graham. Even after celebrating its half century, it still stands as the best ever found, trusted formula for value investors. There are lots of researches happened based on this formula to enhance maximum or identify more better formula than Margin of Safety, but it never produce any right results. Graham’s Margin of Safety Formula still stands as the best one didn’t left any space for another formula to beat it. As one of the Warren Buffet’s highly trusted formula, it enhanced his own strategies to push his wealth to a whopping 3400 times over 44 year period!

Whatever you read or heard about Margin of Safety formula, you never become bored if you get a chance to read more about it. I have added some best articles to introduce this formula in a simplified way. These articles explaining Margin of Safety and simplifying the understanding. As this formula came to us from a world famous genius and father of value investing, even my knowledge is limited in the sense of understanding. Now, it is the time to explore that long hidden articles in this blog: Before coming to the point, we would start this section with somw best advices from Warren Buffett about the selection of a business to invest. Once you have identified a business using his approaches, you can move to the next step, i.e. using ‘Margin of Safety’ formula to identify the safety of buying the stock to your portfolio.

Below are the critical parameters that Buffett use to select stocks:

1. Any business with strong fundamentals: Simple and understandable businesses, having consistent operating history and favorable long-term prospects.

2. With strong and excellent management: Management of any company should be rational, candid with shareholders, resisting the compulsion to act just to prove a point.

3. Business with stable financial history: Stability in high profit margins and return on equity, sustained growth in earnings, less capital requirements on an incremental basis, low or nil debt on the books.

4. Selling at attractive valuations: Keeping a strong margin of safety, available at a significant discount to their intrinsic values.

Buffet never said any person required extra ordinary skills to have superior investment success. Instead he once said, “Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing”. As this is the word from world’s best investor Buffett, there is no possibilities to become it as a flop.

It is the time to revisiting the best article I have posted earlier. This article would help you to get well understanding on Margin of Safety formula: Simplifying Benjamin Graham’s famous “Margin of Safety” formula

So here is another article “Decoding “Margin of Safety” The CLASSIC FORMULA from Benjamin Graham to Value Stock” , is a simplified version of above formula. Once you have read the previous article, go ahead with it and get full understanding on the formula.

I am sure, reading both above article give you perfect idea and understanding on the formula.

Here is a small video to know what Warren Buffett thinks about Benjamin Graham

: Do you still feel there is another formula that able to beat Graham’s Margin of Safety or better than it? I have already said it is the best ever formula for more than 50 years and if you have a better formula than this, I challenge you to inform why you feel your findings are better?kevinzhengli