Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway's Vice Chairman on Life, Business, and the Pursuit of Wealth With Commentary by David Clark

by David Clark

Prepare for the worst, and hope for the best. It is always wise to be prepared for the worst. Benjamin Graham’s “margin of safety” was devised to protect us from the worst. When it comes to stocks, Charlie thinks of the margin of safety in terms of price and quality—the lower the price, the higher the margin of safety; the higher the quality of the business, the higher the margin of safety. Raise the price, and the margin of safety starts to evaporate. Lower the quality of the business, and the margin of safety drops. If we buy a high-quality business at the right price, the margin of safety will protect us against long-term losses, and later on the high quality of the business will bring us many profitable surprises as the business continues to grow either internally or through acquisitions.