Margin of Safety Principle: Historical Stock Price Vs Intrinsic Value Per Share

http://www.oldschoolvalue.com/investment-tools/investment-spreadsheet-how-to-use-tutorial/

http://www.hendersonassociates.co.nz/investment-philosophy-xidc11189.html

*Intrinsic value can be defined as the future cash flow a company will generate, discounted back into today's dollars.

Investment Philosophy

Our investment philosophy is based on the notion that if you want to become successful in a discipline, start off by studying those that have already succeeded in it.

When seeking some of the greats in the investing industry to learn from, you can't go past the likes of Warren Buffett, Benjamin Graham and Phil Fisher. Buffett is the Chairman of Berkshire Hathaway and has devoted his life to investing. He is the second richest person in America, behind Bill Gates, and has made over US$35 billon in the stock market over a fifty year period. When it comes to investing people will tend to listen to their friends at the pub, neighbour, stock broker, or a newspaper columnist who has maybe never made money in the stock market, etc, but for some strange reason they dont tend to listen to those that have successful track records.

After studying these investors you learn of a philosophy containing such terms as 'Intrinsic value'*, 'Mr Market', 'Value investing', 'Look-through earnings' etc.

Based on this philosophy we construct our portfolio from a New Zealand investors perspective. We run a database on the top investors from around the world and use this to pick the top ten investment managers for our equity portfolio.

Invariably the factor that distinguishes the managers we use is their focus on purchasing shares that are priced at a sufficient discount to the companys Intrinsic value*. This then provides what Benjamin Graham termed a 'Margin of safety'. Ben wrote in The Intelligent Investor - "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety."