A margin of safety is useful when going under an overpass.

The Seeking Wisdom blog on WordPress had a great post about the concept of margin of safety. Read it here.

Among other points, he provides an excerpt of a 1984 speech on buying companies, by none other than Warren Buffett (boldface is Vembunarayanan’s).

You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying businesses. But you do not cut it close. That is what Ben Graham meant by having a margin of safety. You don’t try and buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000pounds, but you only drive 10,000 pound trucks across it. And that same principle works in investing.

He has a more recent post on supply and demand that’s worth a read also.

Related articles

• Microsoft Stock Has a 29% Margin of Safety (fool.com)
• How Value Investing Can Work for You (dailyfinance.com)
• The Seven Immutable Laws of Investing (ritholtz.com)