The margin of safety has little to do with price but more to do with the quality of the business (durable competitive advantage and economic moat) and its management.
Buffett: "In investing in securities, you can change your mind tomorrow and sell it if you feel you have made a mistake. When you buy a business, we buy businesses to keep. So .. our margin of safety is not in the price we pay .. it's in crossing the threshold of being virtually certain of buying into a business with durable competitive advantage, that is, one with good economics ... and we are buying in into people with a passion for the business and who are going to run it in the same way the year after they sold it to us the year that they run it the year before. So our margin of safety gets more into the qualitative characteristics than the quantitative aspects that you probably refer to in terms of the Ben Graham's standard of buying a business for .... he would say buy a stock .. if you think a stock is worth $10 .. don't pay $9.90 for it but $8.00 or something like that. When you are buying businesses, it's a different criteria, you are buying to keep and you better make sure that you are buying both the businesses that you like 10 or 20 years from now and the management that you are going to love 10 or 20 years from now.
We don't look for specific sectors, but we do look at businesses that I can understand. That means where I feel I have a high degree of confidence in my ability to see what they are going to look like 5, 10 and 20 years from now. It isn't that I don't understand, say the software product in general of the Microsoft but I don't know how that industry is going to develop 10 or 20 years. I didn't know that Google was going to come along in terms of search .. and all kind. So, anything that is rapidly developing, has lots of change embodied in it, by my definition, I won't understand. It may do wonders for society. It may have what appears to have a bright future, but I don't bring anything to that game that I know. Not only I don't know more that the other fellow, I do not know as much as the other fellow in evaluating what the industry will look like in 10 years. So, besides the things I look at businesses are reasonably easy to evaluate where the products .. how they will fit in with the economic picture .. how their economics will look in the 5, 10 or 20 years period. (2.40 minute)...Take an extreme example, I can understand Nestle ............................."
Buffett: "In investing in securities, you can change your mind tomorrow and sell it if you feel you have made a mistake. When you buy a business, we buy businesses to keep. So .. our margin of safety is not in the price we pay .. it's in crossing the threshold of being virtually certain of buying into a business with durable competitive advantage, that is, one with good economics ... and we are buying in into people with a passion for the business and who are going to run it in the same way the year after they sold it to us the year that they run it the year before. So our margin of safety gets more into the qualitative characteristics than the quantitative aspects that you probably refer to in terms of the Ben Graham's standard of buying a business for .... he would say buy a stock .. if you think a stock is worth $10 .. don't pay $9.90 for it but $8.00 or something like that. When you are buying businesses, it's a different criteria, you are buying to keep and you better make sure that you are buying both the businesses that you like 10 or 20 years from now and the management that you are going to love 10 or 20 years from now.
We don't look for specific sectors, but we do look at businesses that I can understand. That means where I feel I have a high degree of confidence in my ability to see what they are going to look like 5, 10 and 20 years from now. It isn't that I don't understand, say the software product in general of the Microsoft but I don't know how that industry is going to develop 10 or 20 years. I didn't know that Google was going to come along in terms of search .. and all kind. So, anything that is rapidly developing, has lots of change embodied in it, by my definition, I won't understand. It may do wonders for society. It may have what appears to have a bright future, but I don't bring anything to that game that I know. Not only I don't know more that the other fellow, I do not know as much as the other fellow in evaluating what the industry will look like in 10 years. So, besides the things I look at businesses are reasonably easy to evaluate where the products .. how they will fit in with the economic picture .. how their economics will look in the 5, 10 or 20 years period. (2.40 minute)...Take an extreme example, I can understand Nestle ............................."
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