1. You expose your capital to less risk.
2. You enhance the likelihood of better returns.
In the short term, stock prices are unpredictable. They fluctuate to a far greater degree than the value of the underlying assets they represent. In the medium-to-longer term, a rational investor can use the stock market's fluctuations to their advantage by having knowledge of the true economic value of a company and only investing when the stock market offers a company's stock for less than that value. Having a margin of safety is one of the cornerstones of our investment philosophy.
It requires a willingness to have opinions that differ from the crowd. It also requires one of the most underappreciated characteristics of successful investors: patience. Too many investors succumb to the pressure to constantly trade in and out of stocks in their portfolio and to always be fully invested.
We acquire businesses only after doing exhaustive fundamental research. We scour the public markets for the best businesses and patiently wait for the stock market to undervalue them, resulting in pricing that offers the most attractive reward-to-risk trade-off.
If you experience a loss of:
To break even, you will require a return of:
Amount of money at risk
Your return, if asset is eventually sold for its intrinsic value of $100