I have previously asked whether the 70% intrinsic value % cutoff already included the margin of safety and I was given a positive answer. Now I realize I am not really clear on this point and where the margin of safety is built into in the formula.
My understanding from the intelligent investor was that let's say a stock has an intrinsic value of 10$. That's the value it should be trading it if it was fairly priced. But in order to have a margin of safety in case the market does not recognize their mistake, I will only buy it when it drops below 7, leaving a 1/3 margin of safety.
Now I understand from you that the formula already incorporates the margin of safety + there is an adjustment for bond interest rate compared to Ben Graham time, which makes for example for the US stock such that the right price for the stock with adjusted interest is the one that make a 70% intrinsic value %, and that includes margin of safety.
In other words, if stock trades for 10 and it's intrinsic value is above 7, that would be okay. Can you break down how this is derived? Many thanks.
Then, having established this, following the work of Ben Graham, the intelligent investor would no longer have much of an interest holding the stock once it has reached or better - exceeded - its fair value.
So now we have the intrinsic value at 7, my purchase price at 10. What would be the fair value to sell? How do I calculate the point where the stock becomes 'overvalued'. Is it as soon as the ratio drops below 70%?