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The Margin of Safety and Impact on Investment Returns

18.05.12

But with volumes having been written on this timeless principle, and contemporary mega-investors, such as Warren Buffet, proving its validity and power every day, it’s a wonder that more investors haven’t fully embraced the “Margin of Safety.” The lineage of margin of safety followers is that of royalty in the investment world. The principle emerged in the works of investment scholar, Benjamin Graham, also known as “the father of value investing.” Indeed, Graham spends an entire chapter in "Intelligent Investor" on the concept. Margin of safety later became the central theme of investment guru Seth Klarman , in his 1991 book, "Margin of Safety: Risk Adverse Investing Strategies for the Thoughtful Investor." Klarman’s book is no longer in print, so thoughtful investors pay as much as $1,300 on Amazon.com for a collector's copy. Klarman manages the ultra-successful Baupost hedge fund which has achieved an astounding 20% annual return with only one negative year.

Source: GuruFocus.com