A MARGIN OF SAFETY

In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, "This too will pass." Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY... It is worth repeating: A margin of safety in investing reduces the need for an accurate prediction of the future. The investment process focuses instead on understanding the things that make a business valuable and whether the price in the marketplace for that business is significantly lower than its value... Graham defined a margin of safety as "a favorable difference between price on the one hand and indicated or appraised value on the other." Graham describes what he means by "indicated or appraised" value in the first chapter of Security Analysis, co-authored with David L. Dodd; it is "intrinsic value."