- We have here, by definition, a favorable difference between price on the one hand and indicated or appraised value on the other.
- That difference is the safety margin. It is available for absorbing the effect of miscalculations or worse than average luck.
- The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments.
- For in most such cases he has no real enthusiasm about the company’s prospects.
But the field of undervalued issues is drawn from the many concerns—perhaps a majority of the total—for which the future appears neither distinctly promising nor distinctly unpromising.
- If these are bought on a bargain basis, even a moderate decline in the earning power need not prevent the investment from showing satisfactory results.
- The margin of safety will then have served its proper purpose.
Ref: The Intelligent Investors by Benjamin Graham