Margin of Safety Confusion

Sorry for all the questions, I just recently subscribed. I am confused about the specifics for "Margin of Safety". Part of my confusion I can now see is using books that do not address Grahams principles correctly; those books have been tossed. For example, in the Book "Value Investing Made Easy" by Janet Lowe, she gives 10 specific criteria, but as I deep-dive into your website material, it looks like a lot of these authors have reinterpreted and heavily modified what Graham outlined.

I have found forum posts regarding the definition of "Margin of Safety" but have never found the actual specifics, the quantifiable rules. You of course have the 3 categories of stock grades with some portion of the seventeen qualitative and quantitative specifications specifically assigned for each.

And I did find this in the Forum here: "Please note that not all stocks failing Graham's rules are necessarily bad investments. Graham's rules are just extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them completely, Graham's rules give a clear and quantifiable frame of reference for measuring a stock's margin of safety." >>>> but where are the rules for "Margin of Safety"?

Thank you

Stocks Discussed: 
Hewlett Packard Enterprise Co (2HP.SG)

Dear BobT,

Thank you for your forum post! All your queries are welcome.

Graham being misquoted and misinterpreted is actually quite a frequent occurrence.

The line you have mentioned above appears to be from High-Quality Value Investing With Benjamin Graham, and is elaborated on a bit more in the above link.

The Margin of Safety has been explained as a concept by many different investors, including Buffett and Graham. In Graham's own words, the margin is simply the "difference between price and appraised value".

Therefore, the rules for the Margin of Safety are precisely the ones given in the stock selection chapters of The Intelligent Investor.

Thank you again for your forum post!

Thanks as always for the detailed and quick responses, they are appreciated.

I see my confusion. To summarize, the "Margin of Safety" is SPECIFIC to each of the 3 categories of stock ONLY. If our stock passes ALL the Defensive rules, it has passed margin of safety for Defensive category. Same for Enterprise and NET NET.

BUT, you can have Margin of Safety, passing ALL EIGHT Defensive specifications AND STILL NOT be a Defensive pick if the intrinsic value is not @ 70% or higher of the stock price.

Correct? Thank you


Dear BobT,

Thank you for your comment!

Two of the eight Defensive rules concern price and need to be adjusted for interest rates, but you're right.

A stock could clear all six of the qualitative Defensive criteria, and still not be within the Margin of Safety if the price isn't within the appraised Intrinsic Value for that Graham Grade.

Thank you again for your comment!

Graham Resources