9Part II — The Investor's Workshop: Method, Valuation and Risk
Chapter 9
Benjamin Graham: investing with a margin of safety
Mr Market, intrinsic value and the margin of safety. How the father of value investing helps you buy with greater peace of mind.
Benjamin Graham, Warren Buffett's teacher, invented Mr Market — a moody business partner who offers to buy or sell you shares every day. One day he is euphoric and asks an absurd price. Another day he is depressed and lets everything go for next to nothing. You do not have to trade with him. You can wait.
Margin of safety
It is the difference between what your analysis says a company is worth and the price you pay. The margin protects you from your own valuation mistakes — and those are bound to happen.
Worked example
The margin of safety in practice
- Estimated intrinsic value per share
- 100 €
- Market price
- 67 €
- Margin of safety
- 33%
Even if your valuation was 20% off, you still bought below value.
Dirkforeman
The rack can hold two tonnes. How much do we put on it?
Bartnarrator
Two tonnes?
Dirkforeman
One and a half. We leave the rest for what we don't know.
11 / 14 · Educational content, not investment advice.