 Good day, fellow investors. In this video, I'll discuss four ways to determine a margin of safety in a company. You want to know, okay, what's the maximum that I can lose? What's the real value of the company? Compare it to the price and invest accordingly if you're a value investor. This limits your downside, limits your risks, and increases your upside. So let's immediately start with the first determining factor for margin of safety, the ultimate margin of safety when you invest in a company, and that's cash. So in October 2008, more than 1,000 companies on the US Stock Exchange were trading at below net cash per share. So the stock prices were below the net cash per share. So you couldn't lose on those stocks, but there were 1,000 stocks trading so now I think if you find a few trading below net cash per share, you are a very good investor and those will be probably terribly plagued companies by lawsuits or something. So it's very different market. However, in long period, you can always find companies that the stock price is lower than the cash per share. How do you determine the cash per share? You look at the cash on the balance sheet, you look at total liabilities, so you deduct total liabilities from the cash and as the net cash, you divide it with number of shares and you get to net cash per share. Compare it to the stock price and there's your margin of safety. Quick example here, this is Nefsun, one of the companies I follow, I'm invested in, so I'm long Nefsun. In 2016, the stock price was 2.27 close to 2.32. However, at that moment in time, Nefsun had 416 million US dollars in cash in Canadian banks. That will be 2.3 dollars per share as the number of shares back then was 200 million and that was an extreme margin of safety. You can see that it was just for a short term that the stock traded that low and immediately rebounded. Now the company has been plagued by problems in Ethiopia, by cutting the dividend, by lowering the life of mine, by postponing the pre-visibility study. So the stock price is still there 2.10, but nevertheless the margin of safety that Nefsun had in cash really provided the margin of safety. Those who invested in back in 2016 probably sold smartly a few months later with a 50% gain. Too bad. The second way to determine a margin of safety is look at liquidation value. To look at liquidation value, have to assume that the company stops being a going concern and let's say we sell everything that the company has and what do we get divided by pay all the liabilities of course and divided by the number of shares and we have liquidation value. You can look at book value, but book value is not a good factor to look at. That's the accounting value of the company. For example, let's say a company bought a building 40 years ago. Paid for it what it paid, let's say a million. After 40 years, if they didn't revaluate the building the value of the building on the balance sheet is zero because it has been depreciated. However, the actual value of the building is much, much higher if they would sell it now. So you have to really look at all the assets the company has, compare it to what's on the balance sheet, but look at the assets, deduct the liabilities. The only liabilities that we have to be careful are pension liabilities. Those can be very, very volatile. Nevertheless, if you sum up the value of the assets, the deduct the debt you get to liquidation value and that's another margin of safety. When you invest at a discount to liquidation value, you limit your risks and the upside is left to whatever are the catalysts with the stock. The third way is intrinsic value. Buffett defines intrinsic value as the discounted value of the cash that can be taken out of the business during its remaining life, taken out, very important. And Buffett considers it the only logical approach to evaluating the relative attractiveness of the business. So here you really have to dig into the company, know what will happen and look at how the company's margin will be affected and what will be the free cash flow. Why I mention emphasize free because if a company makes so much money and then they reinvest all that money, like the guy that says, oh, I make money but all my money is in my tools. You don't want to invest in such a business. You want to invest in a business that has money over for investors. I should too listen to this advice more carefully and I will in the future. So when there's cash, that's good. And then you calculate, okay, in the long term, what will be the average cash flow that we can get from the company, compare it to your wanted return, then you get the price that's your intrinsic value. For everybody, the price is different depending on the return on the discount rate on the risks. However, if you sum up the cash, is it better than other investments? And then you find the best investments at the lowest risk. If you can buy at the discount, then your intrinsic value, then you're practically buying at no risk because sooner or later the stop price will hit your intrinsic value. And in the meantime, you'll be very happy with the returns coming from the earnings from the dividends. The fourth margin of safety element is qualitative factors, not quantitative qualitative factors. We live in a strange world, new world, it's changing constantly, so it can be number of users. How much is somebody willing to pay for that ownership list? Facebook WhatsApp, value of WhatsApp was zero, but there was a margin of safety in the amount of client, brand strength, management, geographical position, legal position, future contracts, any kind of advantage that the company can have, and you can price it. And that's very important. And the more you focus on your specific competence circle, the more you will find such investments and you will be better into valuing. Everybody has a specific circle and you focus on that and you will find intrinsic value. When you combine all the four ways of finding a margin of safety, you can really find low risk investments with high upside. In this environment, there will be few and far in between, but if you don't find enough, you're not happy, just do nothing. In two years, in a year, there will be something new. I'll finish with Buffett's truck margin of safety example, and he says, when you build the bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pounds trucks across it, and the same principle works in investing. So if we find the stock with an intrinsic value of 100 for us based on the earnings on the margin of safety, book values, cash, whatever, and the stock price is 30, then you buy it. Because even if you're wrong with the estimation, and you will always be wrong with the estimation, perhaps it's 200, perhaps it's 100, perhaps it's only 50, it's impossible to know the future and future cash flows. However, the lower is the price you pay, the higher is the safety coming from the possibility that you can be wrong. And I guarantee you, we will all be wrong. So if you buy low at a huge difference between the price and the margin of safety intrinsic value, then you can really invest low risk. And really going back to Buffett, if we say, okay, we'll invest only 20 investments our whole life, then we'll make sure that we are buying stocks 20, 40 cents on the dollar. Opportunities arise all over the place, you have to just look at them. If you are a value investor, some people like value investing, some don't, some run away from value investing. So and that's something you are, I cannot change it, you cannot change, you either are a value investor or not. Thank you for watching, looking forward to your comments, click like if you like the content and I'll see you in the next video.