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response . . . but through the minds and decisions of buyers and sellers.64

One of your [business] partners, named Mr. Market, is very obliging, indeed. Every day he tells you what he thinks your interest is worth and . . . offers either to buy you out to sell you an additional interest on that basis. . . .Often . . .Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems . . . little short of silly.65

The margin of safety is the central concept of investment. A true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.66

While their philosophy is similar, the funds in our group apply it in quite different ways. (Buffett came to the same conclusion in looking at his group of nine value funds twenty years ago.) Some focus on small and mid-cap stocks, others invest in large-cap stocks. One of the group follows a highly quantitative approach, which closely the echoes the techniques used by Graham. Thus the ratio of market price to book value, working capital, earnings, cash flow, revenues, are primary factors in defining value. Several of the funds look for value overseas as well as in the U.S. Another buys deep discount debt and does risk arbitrage.

At least one of the funds has moved much closer to the principles first enunciated by Philip Fisher in his celebrated “Common Stocks and Uncommon Values” in 1958.67 He was contemptuous of the constant attempts to forecast economic and market trends. But for Fisher, value investing was more than a simple quantitative analysis, such as the price/earnings ratio, or price/book value ratio. Unlike Graham, whose approach had been forged in the dark years of the Great Depression, Fisher believed that value investors could succeed by finding growth companies at reasonable, if not cheap prices, and staying with them over time. The fact that a stock might sometimes seem overpriced, he wrote, needed to be considered in the context of its long-term business prospects and growth potential. In words much like those of Buffett and

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