The fifth and final rule of value investing is the importance of having a "Margin of Safety". In the simplest interpretation, it means to buy a stock that is worth more than it is currently priced.
The margin of safety rules are created by the individual investor. For example, some would suggest that the buying price should be 50% of your expected valuation. For others, they would think that 30% is sufficient.
Expected Valuation of Company A: $400
Margin of Safety 50%: $200 (You should buy Company A shares at $200)
We think that the most difficult part of this concept is calculating the expected valuation. You may think that Apple shares are worth $400, while someone else will think its worth only $300. Although nobody can ever predict the future accurately, you should at least have a reliable method of predicting.
APPLICATION TO SOCCER BETTING
In our last post, we pointed out that Manchester United and Blackpool are the teams that have 70% of their games finishing with at least 3 goals.
If you believe there are going to be 3 goals, let's consider a few margin of safety options.
16% MOS: Over 2.5 goals
33% MOS: Over 2 goals
50% MOS: Wait till half-time only. If a game has no goals, you have a choice to place over 1.5 goals or wait for 1 ball to further increase MOS.
If the goal comes before you placed your bet, using a Margin of Safety means you have given up an opportunity cost. You should never let yourself be concerned about losing opportunities. In true investment, you should always think about preserving your capital.
The margin of safety rules are created by the individual investor. For example, some would suggest that the buying price should be 50% of your expected valuation. For others, they would think that 30% is sufficient.
Expected Valuation of Company A: $400
Margin of Safety 50%: $200 (You should buy Company A shares at $200)
We think that the most difficult part of this concept is calculating the expected valuation. You may think that Apple shares are worth $400, while someone else will think its worth only $300. Although nobody can ever predict the future accurately, you should at least have a reliable method of predicting.
APPLICATION TO SOCCER BETTING
In our last post, we pointed out that Manchester United and Blackpool are the teams that have 70% of their games finishing with at least 3 goals.
If you believe there are going to be 3 goals, let's consider a few margin of safety options.
16% MOS: Over 2.5 goals
33% MOS: Over 2 goals
50% MOS: Wait till half-time only. If a game has no goals, you have a choice to place over 1.5 goals or wait for 1 ball to further increase MOS.
If the goal comes before you placed your bet, using a Margin of Safety means you have given up an opportunity cost. You should never let yourself be concerned about losing opportunities. In true investment, you should always think about preserving your capital.
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