Margin of Safety Renders Prediction Unnecessary

““The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.”9”

“The idea of a margin of safety, a Graham precept, will never be obsolete. —CHARLIE MUNGER, WESCO ANNUAL MEETING, 2003 No matter how wonderful [a business] is, it’s not worth an infinite price. We have to have a price that makes sense and gives a margin of safety considering the normal vicissitudes of life. —CHARLIE MUNGER, BBC”

“How does one make one’s bones? One searches for the margin of safety in the balance sheet with cash-like instruments, extra hard assets, and little debt. I reiterate – the price should be at a low. One should pay only for low earnings multiples and free cash flow.”

“[This is the stuff on which fortunes are built. Investors largely ignore the merits of compounded returns] We strongly incline to the belief that this last criterion – a price far less than the value to a private owner – will constitute a sound touchstone for the discovery of true investment opportunities in common stocks. [This discount IS your “margin of safety”]”