What is Margin of Safety
Value investing is all about making a good deal. The primary rule of value investing is to have a margin of safety in your investment selection. This means paying less for a company than its actual value.
For example: if a company is conservatively worth $100 million, we would like to purchase that company for $50 million. This serious mispricing can occur when the market overreacts, becomes fearful, or a company is simply overlooked by analysts.
The Right Companies
We search for companies that we can understand that have a niche market or other moat protecting them from competition (like a patent). We also look for inside ownership, limited debt, and a reasonable margin of safety. Finding these companies means doing substantial independent research. We do not move with the crowd, instead we strive to find diamonds in the rough.
Patience Is Key
We keep a careful watch on numerous companies, waiting for a valuable opportunity to present itself. Unlike large investing firms, we have the advantage of patience. We do not need to pretend there is a good deal to be had when there simply isn’t. We can wait extended time periods for a company that meets our strict criteria, ready to seize only the best opportunities.
The thoughts of others
Were light and fleeting,
Of lovers' meeting
Or luck or fame.
Mine were of trouble,
And mine were steady,
So I was ready
When trouble came.
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