Ben Graham calls this chapter both “the secret of sound investment” and “the thread that runs through all the preceding discussion of investment policy”
One of the reasons I think Buffett values strong brands so much is because of the margin of safety concept. A strong brand is an intangible asset that’s usually not reflected on the balance sheet (unless the business has been acquired recently in which case goodwill is a reflection brand value). This intangible asset typically is more durable than physical assets (no depreciation, etc).
100% agree. When Buffett was purchasing American Express back in 63/64 he said the following "Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess - I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a "high-probability insight". This is what causes the cash register to really sing."
I often wonder whether Buffett would have moved over to the "quality" camp even without Munger's influence. By 1963, he had known Munger for a few years, so maybe this was an early manifestation of that influence. Another important influence on Buffett was Phil Fisher, a strong proponent of high quality businesses.
To me, another great aspect of margin of safety is that a greater margin of safety when buying produces greater returns providing it is not so high that you never buy a great company because the price never dips enough. A large margin of safety also protects you more from take-private transactions at a premium to depressed market prices (e.g. during an economic slump when earnings are temporarily depressed and perhaps the company isn't so great after all)
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One of the reasons I think Buffett values strong brands so much is because of the margin of safety concept. A strong brand is an intangible asset that’s usually not reflected on the balance sheet (unless the business has been acquired recently in which case goodwill is a reflection brand value). This intangible asset typically is more durable than physical assets (no depreciation, etc).
100% agree. When Buffett was purchasing American Express back in 63/64 he said the following "Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess - I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a "high-probability insight". This is what causes the cash register to really sing."
I often wonder whether Buffett would have moved over to the "quality" camp even without Munger's influence. By 1963, he had known Munger for a few years, so maybe this was an early manifestation of that influence. Another important influence on Buffett was Phil Fisher, a strong proponent of high quality businesses.
To me, another great aspect of margin of safety is that a greater margin of safety when buying produces greater returns providing it is not so high that you never buy a great company because the price never dips enough. A large margin of safety also protects you more from take-private transactions at a premium to depressed market prices (e.g. during an economic slump when earnings are temporarily depressed and perhaps the company isn't so great after all)
Excellent points! The margin of safety principle fits so many different ways.
Love the cover art
I try to fit in Seinfeld references wherever possible! 🤣
Thanks for posting.
You might be interested in #1 New Release Book on investment mistakes by Warren Buffett to leverage and accelerate investment success: https://relinks.me/B0CW1CKX8H