• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The Marathi Investor

Survival is the only way to get Rich

  • Home
  • Stocks Market Basics
  • Investing
    • Investing Books
      • Common Stocks and Uncommon Profits
      • the DHANDHO INVESTOR
      • Security Analysis
      • Stocks to Riches Book Summary
      • Intelligent Investor
      • One Up On Wall Street
      • the DHANDHO INVESTOR
  • Accounting
  • Mutual Fund
  • Bitcoin Investing
  • Contact Us

importance of margin of safety

The Dhandho Investor:- Chapter 12

April 8, 2022 by Laxman Sonale 3 Comments

Hello friends, in today’s article, we see The Dhandho Investor:- Chapter 12, this chapter is all about the margin of safety while you invest in the stock market. so let’s understand this concept in the author’s words.

Previous Chapter 11

Dhandho 401: Margin of Safety – Always

The Dhandho Investor:- Chapter 12

In this chapter, the author refers the Benjamin graham’s book, the intelligent investor, the key idea of investing, and also the importance of the Margin of Safety. the author also gives examples of Warren Buffett’s investments.

so let’s understand it

the author says, ” Mr. Buffett hosts business school students from over 30 universities every year. The schools represent a wide range from Harvard and Yale to the University of Tennessee and Texas A&M.

the students get to ask him questions on almost any subject for over an hour before heading out to have lunch with Mr. Buffett at his favorite Steakhouse.

virtually every group asks Mr. Buffett for Book Recommendations. Mr. Buffett’s Consistent Best Book recommendation for several decades has been Benjamin Graham the “Intelligent Investor”

As he stated to students from Columbia Business in Omaha, Nebraska On March 24, 2006

The Intelligent Investor is still the best book on Investing, it has only three ideas you read need

  • Chapter 8 – the Mr. Market analogy. Make the Stock Market Serve you. the C section of the Wall Street Journal is my business broker it quotes me prices every day that I can take or leave and there are no called strikes.
  • A stock is a piece of a business. Never forget that you are buying a business that has an underlying value based on how much cash goes in and out.
  • Chapter 20 – Margin of Safety, Make sure that you are buying a business for way less than you think it is conservatively worth.

— Warren Buffett

Graham’s perspective on the importance of the margin of safety seems pretty straightforward and simple. recall that Einstein’s five ascending levels of intellect were ” Smart, Intelligent, Brilliant, Generous, simple.”

When we buy an asset for substantially less than what it’s with, we reduce downside, risk, Graham’s Genious Was that he fixated on these two joint Realities.

  1. The bigger the discount to intrinsic value the lower the risk.
  2. the bigger the discount to intrinsic value, the higher the return.

Then the author talks about, papa Patel and Manilal and Branson’s Dhandho with Margin of safety

the author says, ” Papa Patel, & Manilal have likely never heard of Benjamin-Graham. Branson too has likely never read any of Graham’s books.

Their Dhandho journeys have always been all about the Minimization of risk. They’ve always fixated on the seemingly bizarre notion of ” the lower the risk, the higher the rewards.” (The Dhandho Investor:- Chapter 12)

Most of the top-ranked business schools around the world do not understand the fundamentals of margin of safety or Dhandho. for them, low risk and low returns go together as do high risk and high returns.

Over a lifetime, we all encounter scores, of low-risk, high-return bets. they exist in all facets of life. Business schools should be educating their students on how to seek out and exploit these opportunities.”

then the author gives, the example of Margin of Safety

the author says, ” One of the most vivid examples of margin of safety at work in the equity markets is Warren Buffett.

Observations about his purchase of the Washington Post in 1973.

We bought all of our { Washington Post ( WPC)} holding in Mid-1973 at a price of not more than one-fourth of the then per-share business value of the enterprise.

Calculating the price/value ratio required no unusual insights, most security analysts media, brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million just as we did, and if $100 million stock market valuation was published daily for all to see.

Our Advantage, rather, was attitude; we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.

— Through 1973, and 1974, WPC continued to do fine as a business, and its intrinsic value grew. Nevertheless, by year-end 1974 our WPC holding showed a loss of about 25% with a market value of $8 million against our cost of $106 million. (The Dhandho Investor:- Chapter 12)

What we had bought ridiculously cheap a year earlier had become a good bit cheaper as the market, in its infinite wisdom, marked WPC stock down to well below 20 cents in the dollar of intrinsic value.

….. Warren Buffett

then author explains, how warren Buffett, gets this company at discounted prices

the author says, ” As inside, Mr. Buffett hasn’t sold a single share a Washington Post over the past 30 years of holding the stock.

that’s original $10.6 million dollar investment is now worth over $1.3 billion over 124 times the original investment. the Washinton post pays a modest dividend, now paid by the past to Berkshire Every year, exceeding the Amount Mr. Buffett paid for the stock in the first place.

Why was the Washinton Post Trading at such a large discount to intrinsic value in 1973/1974?

Mr. Buffett goes on to offer an explanation. Most institutional investors in early 1970, on the other hand, regarded business value as only mirror relevance when they were deciding the prices at which they would buy or sell.

this now seems hard to believe however these institutions were then under the spell of academics at prestigious business schools who were preaching a newly fashioned theory;

the stock market was totally efficient and therefore calculations of business value and even thought, itself, were of no importance in investment activities.

Warren Buffett says, ” We are enormously indebted to those academics what could be more advantageous in an intellectual contest – whether it be a bridge, chess, or stock selection than have opponents who have been taught that thinking is a waste of energy?”

Over the past 20 years, there hasn’t been much change in the thinking of institutional investors with regard to market efficiency as stated by charlie Munger when speaking at the 2004 Wesco annual meeting.

Charlie Munger:- Very few people have adopted our approach… maybe two percent of people will come into our corner of the tent, and the rest of the ninety-eight percent will believe what they’re been told ( p.g. that markets are totally efficient.)

It is instructive to note that Mr. Buffett bought his Washinton post stake at a 75% discount to intrinsic value.

As Benjamin Graham told Senator Fulbright, all discounts, to intrinsic value eventually lose.

Mr. Buffett knew that this gap was likely to close in a few years, whenever I make investments, I assume that the Gap is highly likely to close in three years or less. (The Dhandho Investor:- Chapter 12)

My own experience as a professional investor over the past seven years has been that the vast majority of gaps close in under 18 months.

Mr. Buffett has his Washinton Post stake for about $6.15 per share in $25 per share. let’s assume that the Washington Post got to at least 90% of its intrinsic value increased by a modest 10% a year.

So, in 1976, the business would be worth over $33.28 per share ( $25 * 1.1 * 1.1* 1.1), and 90% of that is about $30. If a person bought the Stock in 1973 and sold it in 1976, the annualized return would be about 70% a year. Let’s the kelly Formula and this one, let’s assume the following conservative odds.

Odds of making 4 times or better return in three years – 80%

Odds of making 2 times to 4 times or better return in three years  – 15%

Odds of Breakeven to 2 times – 4%

Odds of a Total loss  – 1%

In this case, the Kelly formula suggests that an investor bet 98.7% of the available bankroll on this mouthwatering opportunity.

At the time, Berkshire Hathaway had a total market capitalization of about $60 million.

Available cash was likely a small fraction of this member. I’d estimate that Mr. Buffett likely used well over 25% of hrs available bankroll on this bet.”

then author explains, Graham’s Fixation on the Margin of Safety

author says, ” Graham’s fixation on the Margin of Safety is understandable. Minimizing downside risk while maximizing the upside is a powerful concept. It is the reason Mr. Buffett has a net worth of over $40 Billion. he got there by taking minimal risk while always maximizing returns.

Most of the time, assets trade hands at or above their intrinsic value. the key, however, is to wait patiently for that super-fast pitch down the center. (The Dhandho Investor:- Chapter 12)

it is during times of extreme distress and pessimism that rationality goes out the window and prices of certain assets go well below their underlying intrinsic value.

Extreme Distress can be caused by macro-events like 9/11 or the Cuban Missile Crisis. or they can be company-specific- for example, Tyco’s Stock Price collapse during the Dennis Kozlowski Corruption Scandal. We can not predict which asset classes are likely to get distressed next. however, if we only focus on a single asset class of Stocks, that encompasses thousands of businesses.

Virtually every week, specific businesses that trade on public markets see their prices collapse. At other times it might be an entire sector that gets written off. More rarely it might be an entire market sells off due to a macro-shock like 9/11

Papa Patel, Manilal, Branson, Graham, Munger, and Buffett have always fixated on a large Margin of Safety and gone to great lengths to seek out low-risk, high-return bets.

it is truly a fortunes’ Formula.”

So this is all about the Dhandho Investor Chapter 12.

[Read more…] about The Dhandho Investor:- Chapter 12

Filed Under: the DHANDHO INVESTOR Tagged With: benjamin graham books, benjamin graham margin of safety book, dhandho investor audiobook in hindi, dhandho investor book in gujarati, dhandho investor book in hindi, dhandho investor book in marathi, dhandho investor summary, importance of margin of safety, margin of safety calculator, margin of safety example, margin of safety formula, margin of safety in break-even analysis, margin of safety in marginal costing, margin of safety in units, margin of safety is provided to, margin of safety is the difference between mcq, the dhandho investor audiobook free download, warren buffet, warren buffett company name, warren buffett portfolio, who is warren buffet

Intelligent Investor: Chapter 20

December 2, 2020 by Laxman Sonale 20 Comments

hello friends, in today’s article we see chapter 20 of the intelligent investor book. In this chapter, we get the Margin of safety, its advantage, and how it is important for us. Chapter 20 of the intelligent investor book, is a famous chapter and also important for investment.

Intelligent Investor: Chapter 20

The margin of Safety:-Intelligent Investor: Chapter 20

Let’s understand the margin of safety with examples, let’s consider the one bridge that has a 200-tonne capacity, on this bridge you try to pass the 199-tonne capacity truck. Most of the time your bridge is broken. So to avoid an accident, you have to take the margin of safety. If you pass the truck which has a weight of 150 tons, then you can pass the bridge without an accident.

To Visit the book summary website: Click here

So when you make an investment in the stock market. you have to consider the margin of safety. Investment with a margin of safety is good, and the best is the margin of safety with your life. (Intelligent Investor: Chapter 20)

So the author gives some points you should know.

Things to know:

  • Relationship between the margin of safety and diversification: When you use the margin of safety or diversification, there is only one motive is to minimize the risk of investment. so there is some relationship between the margin of safety and diversification.
  • The secret to how to get rich is “Don’t lose”:  In investment, the most important part is that don’t lose principal money, If you lose money, then you can not recover the loss of money. so recover this loss you have got a 100% gain or sometimes 1000% gain. So the best way to get is don’t lose money. (Intelligent Investor: Chapter 20)
  • Always remember you can’t time the market: so many traders or some investors try to time the market for quick money, but most of the time lose their money. The intelligent investor doesn’t try to time the market. They always leave away from trading.
  • Don’t pay so much for a stock that you will have to regret it later: The author is telling about overvalued stock buying.
  • Some questions to ask yourself before making a decision:  for this, you can ask yourself is that the worst condition of the company can be recovered in past, and also if your all money is lost, you will be fine with that. You can also ask what is lost in the company instead of the probability of that succeed.

This is all about the margin of safety from chapter 20 of the intelligent investor book.

Previous Chapter 19: Click here

Read More: One Up On Wall Street book

Read More: Common Stocks and Uncommon Profits

Filed Under: Intelligent Investor Tagged With: benjamin graham intelligent investor pdf value investing book, benjamin graham method, benjamin graham net worth, benjamin graham quotes, benjamin graham ratio, benjamin graham students, chapter 20 of the intelligent invesstor, detailed summary of the intelligent investor, diversification, importance of margin of safety, intelligent investor - chapter summary, intelligent investor chapter 16, intelligent investor criteria, intelligent investor mr market chapter, intelligent investor summary pdf, margin of safety, margin of safety accounting, margin of safety benjamin graham pdf, margin of safety business definition, margin of safety example, margin of safety formula, margin of safety toxicology, the intelligent investor chapter 20 pdf, the intelligent investor chapters, value investing book pdf, value investing course, value investing graham, value investing india, value investing pdf, value investing stocks india, value investing warren buffett

Primary Sidebar

Search Post

Please follow & like us :)

Facebook
Facebook
fb-share-icon
YouTube
Instagram
Twitter
Visit Us
Follow Me
Tweet
Pinterest
Pinterest
fb-share-icon
LinkedIn
LinkedIn
Share
Telegram

Recent Posts

  • What is Ethereum and Smart Contract?
  • Blockchain Technology Investment
  • Is bitcoin the future of Money?
  • Is Bitcoin a Currency or an Investment?
  • How Bitcoin’s Prices Increases in Past?

Recent Comments

  • How to win friends and Influence People - book summary pro on Security Analysis: Chapter 15
  • Zero to One Book summary - book summary pro on Intelligent Investor: Chapter 14
  • Top 10 best books on Self Help - book summary pro on Intelligent Investor: Chapter 20
  • Top 10 Best books on Money - book summary pro on Intelligent Investor: Chapter 18
  • Best Books on Investing - book summary pro on Intelligent Investor: Chapter 20

Categories

  • Accounting (1)
  • Bitcoin Investing (10)
  • Common Stocks and Uncommon Profits (12)
  • Intelligent Investor (19)
  • Investing (10)
  • Investing Books (1)
  • Mutual Fund (1)
  • One Up On Wall Street (22)
  • Security Analysis (16)
  • Stocks Market Basics (1)
  • Stocks to Riches Book Summary (11)
  • the DHANDHO INVESTOR (13)
  • Uncategorized (1)

How to deal with Mr. Market

The Intelligent Investor Chapter 8:- Investor and Market Fluctuations

50,000 Frenchman can be wrong

One up on wall street Chapter 20

Best time to Buy and Sell Stocks

When to Buy and sell stocks

Common Stocks and Uncommon profits Book Summary

Common Stocks and Uncommon Profits book review

One Up On Wall Street:- Chapter 13

One Up On Wall Street Book: Chapter 13
What is Ethereum

What is Ethereum and Smart Contract?

April 29, 2023 By Laxman Sonale Leave a Comment

Hello friends, in today’s article we discuss Ethereum and Smart Contracts Explain. After reading this you get the good and bad things about Ethereum and Smart contracts. Previous Article on BlockChain Ethereum and Smart Contracts:- After Bitcoin, the second most extensive network is the Ethereum network of blockchain technology. Just like Bitcoin technology saves the […]

Blockchain Technology Investment Good or Bad?

Blockchain Technology Investment

July 13, 2022 By Laxman Sonale 1 Comment

Hello friends, in today’s article we see the Blockchain Technology Investment in form of Computer science and understand the basics and their goals. We see in the previous article, that the main goal of making a bitcoin is to remove the Bank to make payments person to person. to complete this goal, one system is […]

Is bitcoin the future of Money?

Is bitcoin the future of Money?

May 20, 2022 By Laxman Sonale 1 Comment

Hello friends, in today’s article, we see whether is bitcoin the future of money? what happens in the future if cryptocurrency is ruled by the government, let’s understand all questions answered in this blog. Previous Article on Bitcoin Is Bitcoin the future of money:- Before starting this discussion, I read a previous article on bitcoin, […]

Is Bitcoin Currency or Investment?

Is Bitcoin a Currency or an Investment?

May 20, 2022 By Laxman Sonale 1 Comment

Hello friend, in today’s article, we see is bitcoin a currency or an investment? and what is the effect on our economy and how we can use it for our best use? so let’s see each and every factor. Previous Bitcoin Article is Bitcoin a Currency or an Investment?:- before the start, let’s understand these […]

How Bitcoin's Prices Increases high in past?

How Bitcoin’s Prices Increases in Past?

May 20, 2022 By Laxman Sonale 1 Comment

Hello friends, In today’s article, we see how Bitcoin’s prices increase in the past, what are the reasons behind that, and most important question, if Is there any chance bitcoin prices goes up in the future. so let’s see them one by one. Previous Bitcoin Article How bitcoin’s prices increase:-   so, friends, anything product […]

What Gives Bitcoin Value?

What gives Bitcoin Value?

May 16, 2022 By Laxman Sonale 2 Comments

Hello friends, in today’s article, we see what gives bitcoin any value. If bitcoin has any value, so then what things, give the value? so let’s understand step by step. Previous Bitcoin Article Fiat currency and What gives Bitcoin Value?:- In history, Food, animal, gold, and silver coins were used as currency. Because Food is […]

Fire Movement

FIRE Movements in Life

May 1, 2022 By Laxman Sonale Leave a Comment

Hello friends in today’s article, we talk about the FIRE Movements. FIRE means Financial Independent and Retire Early). Everyone wants to retire early, so for that, we writing this blog. so let’s understand how to get retire early. so let’s start Financial Freedom Fire movements:- Financially Independent, Retire Early) The FIRE movement, the concept was […]

Financial Freedom for common man

Financial Freedom for common man

April 11, 2022 By Laxman Sonale 1 Comment

Hello friends, today we talk about Financial Freedom for the common man. Stock Market helps you to achieve this goal. so let’s understand what is the real meaning of financial freedom, and how can we achieve that. Financial Literacy What is the real meaning of Financial Freedom for the common man? In simple words, says, […]

The Dhandho Investor Chapter 11:- Fixate On arbitrage

The Dhandho Investor Chapter 11

April 5, 2022 By Laxman Sonale 1 Comment

Hello friends, in today’s article, we see The Dhandho Investor Chapter 11 Summary. this chapter is all about fixating on Arbitrage. so let’s understand, how value investors can take benefit from this arbitrage. Previous Chapter 10 Dhandho 302:- Fixate On arbitrage (Chapter 11) In starting the author explain, what is the arbitrage, and how value […]

Problems with Cryptocurrency

problems with cryptocurrency like Bitcoin

April 4, 2022 By Laxman Sonale 1 Comment

Hello friends, in today’s article, we see the problem with cryptocurrencies like bitcoin. so if you know this problem, then you understand the whole technology, and how it works. so let’s start Bitcoin Story Problems with Bitcoin:- let’s understand one by one 1) Scalability:-problems with cryptocurrencies like Bitcoin In Bitcoin 1 block size is 1 […]

Crypto is really Decentrilized?

Crypto:- Is bitcoin really decentralized

April 3, 2022 By Laxman Sonale 2 Comments

Hello friends, in today’s article, we see the Crypto:- is bitcoin really Decentralized. so the aim of blockchain technology is to become a decentralized system of transactions, that no one can track, or hack. So let’s understand this bitcoin/blockchain technology control. Previous Article on Bitcoin Is Bitcoin Really Decentralized?:- Lots of People say, Bitcoin is […]

Footer

Financial Literacy

Stocks to Riches Chapter 13L- Financial Literacy to Become Rich

When to Buy Stock ( by Philip A. Fisher)

When to buy stocks

Loss Aversion & Sunk Cost Fallacy Bias

Stocks to Riches:- Chapter 5 Loss Aversion and Sunk Cost Fallacy Bias

Sources of Information about Company

Annual Reports of the Company: security Analysis

Mutual Funds:- Good or Bad?

Stocks to riches Chapter 9:- Mutual fund good or bad

Follow us

Get new posts by email

Copyright © 2023 · News Pro on Genesis Framework · WordPress · Log in