Margin Of Safety

Benjamin Graham: "When the general market is high, there are always a number of individual issues that appear definitely undervalued by objective standards, and consequently even more attractive in contrast to the inflated level of other stocks. But that is a time that calls for especial caution. Not only may the 'neglected security' continue neglected for the remainder of the bull market, but when the downturn comes it is likely to decline in price along with the general market. In a word, beware of 'bargains' when most stocks seem very high.

The chief losses to investors come from the purchase of low quality securities at times of favorable business conditions. These securities do not offer an adequate margin of safety in any admissible sense of the term. Most of the fair weather investments, acquired at fair weather prices, are destined to suffer disturbing price declines when the horizon clouds over."