Chapter 20 is entitled "Margin of Safety as the Central Concept of Investment" (p. 512). I think this chapter sums up Graham's investing philosophy.
He not only covers the risk of buying a good quality stock at a high price, but buying a poor quality stock at a high price during an up-trending market. The latter is one of the riskier moves you can do with your money in the context of the margin-of-safety. On the other hand, purchasing stock in a good quality company, even if it's at a high price, will ultimately end up being the better choice.
One other important point in this chapter is the mention of diversification as a tool of safety, not perfection. While he doesn't go into specific methods of diversification, Graham does point out that even if one stock tanks, diversifying your portfolio "guarantees only that (you) have a better chance for profit than for loss - not that loss is impossible" (p. 518).
Intelligent Investor
by Benjamin Graham
Main lesson:
Buying a poor quality stock at a high price during an up-trending market is one of the riskier moves you can do with your money in the context of the margin of safety. AVOID. AVOID. AVOID.
Buying a poor quality stock at a high price during an up-trending market is one of the riskier moves you can do with your money in the context of the margin of safety. AVOID. AVOID. AVOID.
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