Margin of Safety is even more important when everything is going well
Investors suffer huge losses chasing gains in good times
"Don't let your ambition ruin your position" - James Clear
Let's break down how to identify the margin of safety in a stock:
Seth Klarman's definition of margin of safety:
"A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable, and rapidly changing world."
MOS has 2 components
β’Current share price
β’Intrinsic value
The first one is easy to find, and you can view the price in real time on thousands of free websites
The second one requires a deeper dive. There are several ways to calculate the intrinsic value of a business.