Margin of Safety Definition & Application Wiki
Last Updated by WikiWealth
Investment Potential (also called margin of safety)
Investment potential (margin of safety or safety margin), is a term produced by Benjamin Graham and used by Warren Buffett to measure the degree of potential for a stock or fund. If the potential for a stock or fund is 20%, then the stock or fund is expected to increase by 20% over time.
If the margin is positive, then the stock is undervalued. Investment potential is always the same no matter the currency or stock exchange where the company trades. Another definition: In Break even analysis (accounting), margin of safety is how much output or sales level can fall before a business reaches its break even point.
If the margin of safety is above 50%, then an investor should consider buying the stock of fund. A margin of safety below negative 50% means an investor should consider selling a stock fund. Anything in between is considered a "Hold". Margin of safety (safety margin) is the difference between the intrinsic value of a stock and its market price.
Mutual Fund & ETF Potential (Click here to see the ETF research report database)
WikiWealth calculates fund potential by computing the weighted aggregate potential of each investment in the fund. WikiWealth accounts for the leverage of the fund by multiplying fund potential by the leverage ratio. WikiWealth also accounts for any inverse correlations to the performance of the individual investments in the fund. A fund's quoted price does not affect the fund's investment potential, since investment potential is reliant on the underlying portfolio of companies.
WikiWealth subtracts the expenses from the total potential of each fund.