Burgundy On Calculating Margins of Safety

Burgundy Asset Management on Calculating Margins of Safety

During the annual Burgundy Information Session via conference call this Fall, Richard Rooney, President and CIO, was asked to explain the concept of margin of safety. Here is his response.

With every company we look at, we calculate what is called an intrinsic value. That is notionally the price at which we would buy or sell the whole business. It is based on discounted cash flow analysis – essentially we run out, usually over five years, what we think is a fairly predictable outlook for the company, then we assume a terminal growth rate that is usually quite low (between...