Margin of safety

“Yes I love it, in fact I use the site everyday, and it seems to be attracting lots of users worldwide. It’s a great growth story and appears to have much further to run. Yes of course I’ll buy it. How much did you say it was?”

“Oh – I don’t suppose you know if there will be a sale on in the near future?”

ADVFN released their interim results today. Good progress has already been made, and it’s an encouraging outlook statement. I do like the company, and full marks to them for what they have achieved so far. However, the current market cap is £37m, and for me that’s too expensive against my investment criteria.

I’m a great fan of Ben Graham, and I do try to apply his principles as far as I possibly can (although there is clearly compromise when selecting micro-caps).

Was it Graham or Buffet who said, “Don’t forget to ask, how much?”, and certainly I try to identify a “margin of safety” when buying.

As far as I can see, ADVFN have a net tangible asset value of  £1.8m    .

They are still loss-making. Given the market cap, on those two measures alone, I couldn’t justify buying shares at the current price.

We all have our own criteria for investing, and just because it’s too pricey for me, it certainly doesn’t mean that it won’t continue to prosper and command an ever higher market cap.

Good luck to ADVFN and all their investors, and may you all continue to flourish, it’s a great service.

Please also note that I haven’t researched ADVFN in any depth. I have merely taken a cursory glance at their interim accounts.

Note: In “margin of safety” calculations, I discount goodwill and intangibles. The clue is in the name for both.

 Although “Goodwill to all men” is my motto, I’ve never managed to sell any.

 Would this work? - “Dear Mr/Ms Bank Manager, I know I can’t pay my debts just at the moment, but if you could just let me explain the huge amount of intangible value in the accounts”.