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A SMART LOOK AT INVESTING
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Margin of safety: Most important words in investing

The ultimate margin of safety lies in the value created by a business

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    • Applying a margin of safety depends on how you assign value to a business.
    • Applying a margin of safety depends on how you assign value to a business. PHOTO: PIXABAY

    Chin Hui Leong

    Published Tue, Oct 10, 2023 · 06:56 PM

    WARREN Buffett once said that “margin of safety” has been the bedrock of his investing success for decades. But what do those three words mean?

    Let’s use an analogy: imagine you are an engineer and you are tasked to build a bridge that can withstand cars weighing 1,000 kg every day. How strong would you make the bridge – Should it be able to support 1,000 kg or 1,500 kg?

    If you chose the first option, you are cutting it close. But if you chose the second option, you have grasped the concept of margin of safety.

    A smart look at investing

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