Graham number

Why pay too much for a stock?

Imagine you're buying a car. You don't want to pay more than it's worth, right? That's what Graham's 'margin of safety' concept is about in investing.

It's like setting a safety net for your investment. You want to make sure you don't pay more than the stock's true value. The 'margin of safety' is the gap between what you pay and what the stock is really worth.

Example

If a car's market price is 20,000 but its intrinsic value is 15,000, the margin of safety is $5,000.

Remember this

The 'margin of safety' ensures you're not overpaying for an investment, giving you a cushion against mistakes or market volatility.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

Related concepts

Benjamin Graham

Graham coined the term "margin of safety."

Glossary of contract bridge terms

Margin of safety principle: Buy below intrinsic value

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

Deflated Sharpe ratio

DSR penalizes upside volatility as much as downside

Market capitalization

Market capitalization = share price × shares outstanding

Educational content, not financial advice.

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