Posted by: donmihaihai | October 4, 2010

You can check-out any time you like, but you can never leave!

“our margin of safety is not in the price we pay, it’s in crossing the threshold of being virtually certain we are buying into a business that has durable competitive advantage, one with good economics, and we are buying in with the people who have the passion for the business and are going to run the same way the year after the sold to us that they ran it the year before. So our margin of safety gets more into the qualitative characteristics than the quantitative aspects that you were probably referring to in terms of the Ben Graham’s standard of buying a business…”

Thank you cif5000 and I steal it from your site without asking. Enjoying fruit of other people labour.

This is what I think.
WB is doing different thing as compare to buying and selling stock. He isn’t just plainly buying good businesses. Besides buying good businesses, he is building up a reputation in the process in which owners will become more willingly to walk over and say, “Here is my business”. He doesn’t sell business, maybe he can’t sell, and that sell door must be shut.

He understands the business, the industry and he doesn’t over pay for it. With this I assume he almost certain what kind of return he will be getting with each investment. The spoiler? The people managing it. Be it that they no longer wish to do it anymore or unable to react to potential unavoidable changes in the industry. This is where his margin of safety comes in. What he is trying to do has a kind of difficulty because the only way out is success.

It is like the lyrics of Hotel California —You can check-out any time you like, but you can never leave!

I can’t do it that way. Even if I am rich enough, I am not smart enough for that. My margin of safety comes in differently. Use Asia Enterprises Holding as an example.

1) The industry and business
2) Price
3) Management

1) Asia Enterprises Holding is mostly about trading of steel with shipyards. This is a mature business and fairly stable in Singapore. This is an OK business with a ROE likely in teens. The E i.e equity is not what shown up in the B/S but what is required for the amount of activities in the industry. The amount of activities does not depend on the amount of GDP growth in Singapore, China or emerging countries but how our local cluster of Singapore and Batam shipyard businesses play out.

2) Price is fairly simple. Buy at NBV ensure I will get a return of 10 to 20% p.a. going forward assuming NBV = the required Equity. If the required Equity is lower than NBV, the extra equity can be return back as dividends or waste by management. If the required equity is above, Asia Enterprise can leverage up.

3) Management is so far so good.

I can be right with 1), 2) and 3) or totally wrong with all of them. I have no way or smart enough to be certain about it. But these 3 add up to be my margin of safety as they are interlinked. The way I look at it is what I am looking for is the same as WB. But I am not as certain as him, not even close. But I have one powerful weapon — leave.


  1. Hahaha….the real thief added more Asia Enterprises after seeing this post.

    • I’m in this one as well… sleeping on it for a long time liaoz 🙂

  2. Good point dmhh.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: