{"id":2009,"date":"2018-05-15T11:00:53","date_gmt":"2018-05-15T05:30:53","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/?p=2009"},"modified":"2026-04-10T15:57:48","modified_gmt":"2026-04-10T10:27:48","slug":"buy-stocks-at-right-price-50-discount-to-minimize-risk-and-get-fantastic-returns","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/buy-stocks-at-right-price-50-discount-to-minimize-risk-and-get-fantastic-returns\/","title":{"rendered":"How to Determine the Right Price to Buy a Stock?"},"content":{"rendered":"

Knowing the right price to buy a stock is one of the most important factors in investing. Investors often rely on market indicators, but understanding fair value and margin of safety provides a more reliable way to make better decisions.<\/p>\n

The MRP (Maximum Retail Price) of a stock is its fair value and serves as a benchmark for selling the stock. However, the price at which you buy the stock ultimately determines your returns. To reduce risk and improve returns, you should aim to buy the stock at a discount to its MRP.<\/p>\n

So, before buying stocks, what is the discount from MRP you should look for?<\/p>\n

In stock investing, the price is always known and constantly changing, with buyers and sellers active at all times. This makes decision-making difficult. To simplify this, investors often rely on comparisons like the 52-week high\/low, Price\/Earning, or Price\/Book Value. However, these are weak anchors and can lead to poor decisions. MRP helps investors identify the right price to buy a stock<\/strong> based on its fair value.<\/p>\n

But how can you use MRP as an anchor to make good decisions?<\/strong><\/p>\n

We use the concept of Margin of Safety (MOS). When engineers design structures, they include a safety buffer to account for uncertainties. For example, a bridge expected to carry 100 tons may be designed to handle 125 tons. The same principle applies to investing.<\/p>\n

This idea was introduced by Benjamin Graham<\/span><\/span>. In simple terms, MOS is like buying at a discount to MRP. If the margin of safety is 20%, you are effectively buying the stock at 80% of its fair value.<\/p>\n

So, the price you would be willing to pay, the Discounted price = MRP \u2013 Margin of Safety%<\/p>\n

Why do you need a Margin of Safety when investing in stocks?<\/strong><\/p>\n

Stock valuation is based on sound principles but still involves assumptions about the future. Since the future is uncertain, these assumptions may not always hold true.<\/p>\n

If you buy a stock at its MRP, you may earn returns in line with expectations, say 15% over the long term. But if outcomes fall short, returns will also be lower. However, if you buy at a discounted price with a margin of safety, you improve the chances of achieving expected returns or even slightly better.<\/p>\n

In that sense, MOS acts as a cushion against downside risk.<\/p>\n

But what should be the Margin of Safety for stocks?<\/strong><\/p>\n

According to Benjamin Graham<\/span><\/span>, it can go up to 50%.<\/p>\n

\u201cIt\u2019s far better to buy a wonderful company at a fair price than a fair company at a wonderful price\u201d \u2013 Warren Buffett<\/span><\/span><\/p>\n

This means that for high-quality companies, a large margin of safety may not always be necessary. The MOS can range from 0% to 50%.<\/p>\n

Some companies have stable and predictable performance, strong market positions, pricing power, and low debt. For such businesses, the margin of error in valuation is lower. On the other hand, companies with more volatile performance require a higher margin of safety.<\/p>\n

At MoneyWorks4Me, we prefer companies with strong track records, long-term growth visibility, and competitive advantages, even if they are available at fair prices. In such cases, the margin of safety comes from consistent execution and growth visibility.<\/p>\n

When markets are expensive and discounted opportunities are limited, we allocate a portion of the portfolio to such businesses. Over time, they tend to compound and create meaningful shareholder value, even if not bought at deep discounts.<\/p>\n

So, does the market give opportunities to buy a stock at a very low price?<\/strong><\/p>\n

Yes, it does. Markets often overreact in the short term, leading to temporary undervaluation of fundamentally strong companies due to negative sentiment or short-term challenges.<\/p>\n

Over the long term, stock prices tend to reflect the company\u2019s earning potential. Investors who maintain a long-term perspective can take advantage of such opportunities when they arise.\"Right\"\"<\/a><\/p>\n

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*<\/strong>Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.<\/p>\n

*Disclaimer:<\/strong> The securities quoted are for illustration only and are not recommendatory<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The MRP (Maximum Retail Price) of a stock is it\u2019s right value and is a benchmark for selling the stock. But, the price at which you buy the stock will eventually determine your returns. Hence, in order to minimize your risks and earn great returns, you need to buy the stock at a discount from its MRP.
\nSo, before buying stocks, what is the discount from MRP you should look for? <\/p>\n","protected":false},"author":17,"featured_media":13056,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1179,1151,1153],"tags":[241,81,1142,84],"modified_by":"MoneyWorks4me","_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/2009"}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=2009"}],"version-history":[{"count":2,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/2009\/revisions"}],"predecessor-version":[{"id":21451,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/2009\/revisions\/21451"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media\/13056"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=2009"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=2009"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=2009"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}