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.
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.
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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.
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