RT Journal Article
SR Electronic
T1 Deep-Value Investing, Fundamental Risks, and the Margin of Safety
JF The Journal of Investing
FD Institutional Investor Journals
SP 35
OP 46
DO 10.3905/joi.2008.710918
VO 17
IS 3
A1 Kenton K. Yee
YR 2008
UL https://pm-research.com/content/17/3/35.abstract
AB This article shows a value-oriented investor how to determine the margin of safety that she should demand. In addition to market price volatility, the model identifies three sources of fundamental risk: 1) risk that interim news may necessitate revision of an initial valuation estimate before profits can be taken; 2) uncertainty over the reliability of a value estimate; and 3) uncertainty over when market price will converge to the investor's value estimate. The model indicates that, while investors should demand margins of safety that are typically 10% to 25% of the share price, larger margins are justified for especially risky stocks.TOPICS: Risk management, security analysis and valuation, exchanges/markets/clearinghouses