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The Intelligent Investor’s Motto: Margin of Safety

In Chapter 20 of The Intelligent Investor, Benjamin Graham covers the ” ‘Margin of Safety’ as the Central Concept of Investment.” This big idea or motto is the “secret of sound investment” distilled to three words.

Graham says “the function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.” When considering whether an investment carries a favorable margin of safety, calculations should be based on present circumstances, not overly optimistic or hoped-for future situations.

As I delve into this chapter, I learn that though the margin-of-safety principle is one of the main things, it’s not the only thing relevant to intelligent investing. Its companion is diversification. In addition, I discover that real-life adherence to safety margins isn’t simple or always achievable.

Still, the concept is important and mathematical framework, crucial to the task of selecting securities and building a portfolio.

Compound Interest, How It Works

You may have heard that you should invest as early as possible in order to take advantage of compound interest. The younger you are when you begin investing, the sooner compounding can (possibly) start and the sooner exponential growth can (potentially) happen.

The concept of compounding is well worth knowing and relevant to investing.

Different Talents, Different Ways of Building Wealth

This summer, a female friend and I got together to ride bikes — something that we did together often, though generally with more people from our circles of our cycling companions. But this time, on a ride that started on a weekday morning and ended in the early afternoon, some of our buddies teased us about having to work and being unable to join us.

At one of our rest stops, we talked about the fact that we generated income through investing-type activities.

This experience made me wonder if too few people are investing for the long term and relying on current income to pay bills and make large purchases, whether for a new cycling gadget, an epic trip, or retirement years. I grasp that working in a traditional job doesn’t negate saving and investing for the long haul. But the inability to realize that others may have sources of income outside of a regular job cues me to consider that not everyone exercises their talents, interests, and inclinations in a way that’s conducive to accumulating and building wealth.

My Financial Goals for 2017

As 2016 comes to a close, I’ve been thinking more and more about what I want to accomplish in 2017. This contemplation has involved considering my strengths and figuring out how to address my weaknesses.

What I’ve discovered is that while I’m great a few things (which has helped me tremendously), I need to broaden and update my talents. I often feel like Joel McHale’s character in The Great Indoors: I have experience and knowledge that could be helpful and inspiring to others but I’m not as adept at reaching people.

Still, I don’t want to abandon what I know. Instead, I hope to build upon my background. So, my goals include continuing to improve on my strengths, addressing areas of weakness, and expanding my knowledge.

Here are my goals:

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