Glossary of contract bridge terms

Margin of safety principle: Buy below intrinsic value

Warren Buffett's margin of safety principle is a fundamental investment strategy. It emphasizes buying assets for less than their intrinsic value to minimize risk. This approach helps investors avoid overpaying and ensures a buffer against market volatility.

Example

If a company's intrinsic value is estimated at $100, Buffett might buy its shares for $80, ensuring a margin of safety of $20. This cushion protects investors from potential losses if the market price drops.

The margin of safety principle is crucial for investors seeking to minimize risks and protect their capital. By buying below intrinsic value, investors can better weather market fluctuations and achieve long-term success.

Related concepts

Benjamin Graham

Graham coined the term "margin of safety."

Buffett's annual letters consistently emphasize

Buffett's letters consistently emphasize the importance of return on equity over earnings per share

Value theory

Graham emphasizes intrinsic value as a company's true worth based on fundamentals

Graham's net-net strategy is

Graham's net-net strategy: Buy stocks trading below net current asset value

Warren Buffett means by 'Be fearful when others are greedy, greedy when others are fearful'

Warren Buffett's paradoxical investment strategy: "Be fearful when others are greedy, greedy when others are fearful."

Modern portfolio theory

Modern Portfolio Theory (MPT) maximizes expected return for a given level of risk through diversification

Educational content, not financial advice.

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