risk
Margin of safety for behaviour
The rule
A plan needs room for your own bad day, not just room in the price. Leave slack, the way you keep some cash aside before a long trip.
Where it flips
But too much padding can make the plan so timid that it no longer meets your goal. The useful room is just enough to stop forced mistakes.
Margin of safety usually means price versus value. But for a normal investor there is also room for behaviour: smaller size, easy-to-sell holdings, less debt, and rules that still work when you are tired or scared.
A worked example
Two position sizes look the same on paper. One lets you sleep and review calmly. The other turns every small price move into a test of your self-worth.
How to spot it
- ·position too large
- ·no clear rule for when to sell
- ·home cash mixed up with market risk
Benjamin Graham · The Intelligent Investor