Everybody knows that Warren Buffet's famous Rule No. 1 is "Never lose money" and Rule No. 2 is "Never forget Rule No. 1". However, why is it that his Rule No. 1 is not "Always make money" but "Never lose money"? By right, if you aim to always make money, won't the outcome be the same as never lose money?
Since Warren Buffet is heavily influenced by the teachings of Benjamin Graham, we have to bring in Benjamin Graham's concept of "margin of safety" (MOS) in this discussion. Imagine that the intrinsic value of a stock is $1, if the stock trades at $0.90, it would have a MOS of 10%.
Let's now consider 2 investors, one who subscribes to "Never Lose Money" (LNM) and another who subscribes to "Always Make Money" (AMM). Other than this investment principle, let's assume that both investors have the same investment characteristics, e....
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