The Triple Margin Of Safety Approach To Dividend Investing

This is an article that discusses a strategy going forward that hedges your bets, segregating your assets into three different piles, each of which provide you a different kind of margin of safety going forward. It is a combination of value investing, high-quality blue chip investing at a reasonable price, and holding cash. Following this strategy gives you a margin of safety in three ways: price paid, quality and the flexibility and autonomy that comes with having cash on hand.

First, dedicate about a third of investable income to dividend stocks trading at a value. Secondly, dedicate about a third of investable income to dividend stocks that possess the highest quality you can identify, selling at a reasonable price. And thirdly, dedicate a third or so of your investable income to building a cash pile. This three-pronged approach gives you a margin of safety in three ways. It calls for you to buy some good companies at a decent price, in which part of your portfolio is protected by the price you paid for your investment. It calls for you to buy some excellent companies at a reasonable valuation, in which case the resilient nature of the products being sold serves as your margin of safety. And it calls for holding cash, which gives you options.

Source: Seeking Alpha

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