Chatting About Safety Margin
I’m a pretty cautious person, someone who really values safety. So when I read about the concept of “safety margin” in value investing, it was easy for me to grasp, I agreed with it, and I was willing to put it into practice.
Recently, with Trump’s “reciprocal tariff” policy, global stock markets have plummeted. My own U.S. stock account has seen its gains drop from 80% to about 45-47%. It’s been a rollercoaster.
But even so, I’m relatively calm inside because I still have more than a 40% cushion.
A key reason I’m able to stay steady during these wild market swings is this idea of a “safety margin.”
Put simply, the stocks I bought were at a low price. So even with such market turbulence, my overall returns haven’t been hit too hard.
Determining a “safety margin” depends on two factors:
First, the stock’s current price needs to be well below its actual value.
Second, the stock should have enough potential to increase in value over time (for me, that’s five to ten years).
Both are tough to judge. A stock’s actual value is hard to assess accurately, and predicting whether it has ample growth potential is also tough. That’s why stock investing fundamentally requires great caution, care, and conservatism.
Of course, I’m not here to talk about stocks today. I want to chat about how the concept of “safety margin” can apply to everyday life.
Many principles, which sound very academic, are actually quite simple and practical in daily life.
For instance: keep a safe distance from the car ahead when driving.
Or, when driving long distances, don’t wait until the tank is almost empty to refuel. I like to keep my tank with enough gas, never letting it go below 100 miles (about 160 kilometers) of range before refueling.
I can even share two life examples that are a bit similar to the idea of a “safety margin.”
When driving in the rain, I never set the wipers to the highest speed. I always keep that setting for a heavier downpour.
Similarly, since childhood, I’ve never used the highest setting on a fan. I keep that for the hottest weather.
Though in reality, I’ve never actually faced such extreme rain or heat.