It's not enough, however, to simply snap up stocks with sustainable competitive advantages. After all, you've got to buy at the right price in order for it to be a great investment. One day, KO stock may be trading at 40 times earnings, a lofty price for a mature soda company. A year later, if shares are going for 10 times earnings, they look much more attractive.
The so-called "margin of safety" refers to buying stocks well below what you believe their actual value is – that way, even if you're off a little bit, you've given yourself enough leeway that the purchase was still savvy.
Source: MSN Money
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