If There Was Ever An Example Of “Reward-Free Risk” This Is It
zerohedge.com / by Jesse Felder via TheFelderReport.com / Jun 4, 2017 4:50 PM
‘What is the opposite of a “margin of safety”?’ This is a question I’ve been considering because it seems that’s exactly what investors have settled for in passively buying equities today. But first we should probably define “margin of safety” before we can begin to understand its opposite.
Ben Graham famously wrote in The Intelligent Investor, “Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.” Here we have Warren Buffett’s mentor telling us these are the three most important words in investing. So what do they mean?
Well, Buffett explains it like this: “When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And that same principle works in investing.” When you buy a stock, you estimate its intrinsic value and then try to buy it at a discount that allows for a possible error in judgement or some unforeseen, adverse development.
The post If There Was Ever An Example Of “Reward-Free Risk” This Is It appeared first on Silver For The People.
Source: http://silveristhenew.com/2017/06/04/if-there-was-ever-an-example-of-reward-free-risk-this-is-it/
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