Margin Of safety

 



The margin of safety (MOS) has been extrapolated from bonds to equity it can be defined as the " Difference between the price paid for an equity share and the least price available in the range of intrinsic value of the share ". The best MOS is available when there is blood on the street and good quality are sold in fear and panic 

It is also noteworthy to mention that as inflation rise MOS will continue to rise. For MOS company should be large-cap and have a track record of more than 10 years, MOS may not help to not lose money but will help minimize risk. 


Loses usually occur when stocks are bought at high prices when markets are optimistic at the turn of economic tide these companies may lose significant market share. So, money can be lost even in quality companies when bought at a high price.


PS: This is an excerpt from  the book  "Ordinary Stocks Extra Ordinary Profits" by Anand Srinivasan



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