Margin Of Safety

Imagine being in the 1940s, a person with high ideals and values driven by a passion to bring about positive change in society. Chances are, if you express views, whether written or verbal, that may be seen as a threat to the English crown, you will be put in jail or worse, sent to Kaala Paani.

The desire to act on your instincts and do what you deem right may not be the most ideal course of action, as there is no incentive or reward that could outweigh the possible downside risk. However, if you are a madman, like many people throughout history, the downside doesn't matter, as the desire to bring about change outweighs all potential risks.

In finance, the above concept is referred to as 'margin of safety,' although the example cited might not receive the best compliments from the fraternity.

Nevertheless, in simple terms, the margin of safety is a concept used in investing to assess the level of risk in an investment.

As stated at the beginning, the risk of becoming a changemaker was a very risky profession, and only the madly passionate could carry on in the long term. Suffice it to say, the rewards for the same were also equally good.

In contemporary times, numerous checks and balances, while good to level the playing field and prevent the abuse of power, have created an altogether different problem: the problem of having no skin in the game or the belief that maximum output could be achieved with minimum risk.

This has led to the creation of a class of citizens driven not by passion but compulsion – a compulsion to ride the bandwagon without deep conviction and belief in the job that one is supposed to do.

Now, this has created a vacuum in politics and otherwise that is slowly building up like a bubble in a stock market about to burst (Warning: No stock recommendations here).

Now, this is not to suggest that the ‘golden days’ of history were the best and that the present institutions, built over many decades, should simply be demolished as outdated.

In war and in life, only the army that has burnt its bridges, sunk its boats, and has placed itself against the war with the iron will of defeating the enemy deserves to be victorious.

Something similar is indeed at the individual level, at least mentally if not physically, to get the citizenry out of this negative sense of margin of safety and properly incentivize those willing to take the risks..