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In Shares Charting Guide 2002, you demonstrate the margin of safety analysis. Is this carried out after your usual scan of PE ratio, dividend yield and price to NTA?

In Shares Charting Guide 2002, you demonstrate the margin of safety analysis. Is this carried out after your usual scan of PE ratio, dividend yield and price to NTA?

The two things are not necessarily related in a rigid way. I have an aversion to people always trying to boil everything down to a set of rigid rules. The reality of the markets is not like that. Every situation is subtly different. Blind application of rigid rules is a recipe for losses. You must think every situation through to see where it does or does not fit your models of how the markets work.

The scan of fundamentals is simply a way to find stocks that may be interesting. However, the charts may immediately strike the stock out of further consideration.

Once I find an interesting situation on the scan and on the chart, it is necessary to visit the fundamentals. I may, of course have already done this and decided a stock was a good investment on the fundamentals and was just waiting for the chart to come into a buy configuration. In other cases, I will not have looked at the fundamentals before and will now have to do that work.

The margin of safety analysis that I showed is neither a rigid procedure nor a complete analysis. I was writing for an audience who generally have a fear of fundamentals and little knowledge about accounting. I tried to show how some basic anaysis could be done and structured it around Benjamin Graham's idea of the margin of safety. Indeed, I used his parameters. However, this was not a rigid approach either - in fact I suspect that he would turn in his grave if he thought people were trying to imitate him in this way. he would always be aware of when a situation was "normal" and his rules of thumb were relevant and when the situation was unique in some way and required further thought or modification of the rules of thumb.

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