Pay clearly less than you think something is worth, so a mistake doesn’t sink you.
Leave a margin of safety.
You think a business is worth about €100. Pull the line to the most you would pay.
Pay well under what you think it is worth: your guess will be wrong sometimes.
← Red LinesRed Line 32 of 48 The idea The numbers Where you see it Where it bends This game’s numbersHow strong the proof isCMixed proof Where it comes from
Every estimate of value can be wrong. Paying well below your estimate leaves room for the error.
You think a share is worth €100, but you could be 30% out: anywhere from €70 to €130. Pay €70 or less, and even the worst case is worth what you paid.
Engineers build a bridge for far more weight than will ever cross it. The margin is not a sign of doubt; it is what makes the bridge safe.
Waiting forever for a bargain has a cost too.
The offers and their worth: made up for this game
Cheap shares earned more for decades, but much less since 1990, and the same authors now can’t say whether the gap is still there.
- The Cross-Section of Expected Stock Returns Eugene F. Fama & Kenneth R. French, The Journal of Finance 47(2), 427-465, 1992
- The Value Premium Eugene F. Fama & Kenneth R. French, Review of Asset Pricing Studies 11(1), 105-121, 2021
Checked 2 Nov 2026 · How we grade
- A Strong proof: Many good studies or long official data, from different teams or countries, point the same way.
- B Good proof, with limits: Solid studies agree on the direction, but the size varies, or the data covers few places or few kinds of people.
- C Mixed proof: Some good studies for, some against, or the evidence covers only part of the line.
- D Thin proof: Mostly one book’s argument, one survey or stories. It may be wise, but it has not been tested well.
- = True by the sums: It follows from arithmetic, so no study can overturn it. We still show what real data says.
Benjamin Graham, The Intelligent Investor (1949). In our words, not quoted.
See it in numbers: P/E (From Zero)
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