Ask Colin

In Shares Charting Guide you look for companies with a margin of safety. Can these rules be relaxed sometimes?

In Shares Charting Guide you look for companies with a margin of safety. Can these rules be relaxed sometimes?

The fact that there are few companies that satisfy the criteria is what the margin of safety is about. In fact I pointed out that few companies will satisfy it. Many investors tolerate higher risk. It is up to the investor. I was just teaching the Graham method, which has been proven over a long time. It requires a lot of patience and discipline.

You specifically mentioned the debt to equity ratio. Right now (2002) debt is cheap and many companies are geared more highly than they might be if debt was expensive. I think it is a trap to relax standards in these times. When the ballgame changes, as it will, some of these companies and their shareholders will find out what financial risk is about. I remember in the 1980s, when interest rates were high, there were many companies with high debt from earlier times. Most of them were trapped in a situation where gearing was detracting from earnings rather than being leverage on equity.

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