Margin of Safety

It is the difference between the market price and the intrinsic value of a product. If the market price is lower than its intrinsic value, you have a positive margin of safety.

For value investors, the mission is simple: find shares that the market has valued below their intrinsic value and buy them with a margin of safety.

Why is it important?

Investing with a margin of safety is not only about seeking higher future returns; it is the main tool for protecting yourself against risk.

This “buffer” protects you from:

• Analysis errors: No one is perfect. Even with thorough research, you can make mistakes in your estimates. The margin of safety protects you if your valuation turns out to be too optimistic.

• Unexpected events: Life and the market are full of surprises. An economic crisis, changes in the sector or internal company problems can affect shares. If you bought with a margin of safety, your investment will be more resilient.

It is important to remember that a high margin of safety does not eliminate the risk of losses. Therefore, this strategy should be combined with investing in high-quality companies that have lasting competitive advantages and a solid, stable business model.