Does the current stock price provide a margin of safety?
Even the world’s best stock could be a bad investment if purchased at too high a price. Chances are it will not produce the kind of long term returns for the investor because that entry price was too high. A good stock bought at a reasonable price will create a margin of safety in case the company goes through a rough phase.
In good times, that stock can produce outstanding returns. This filter must be used cautiously because buying a bad stock at a low price will most likely turn out to be a bad investment no matter what. The fifth filter must be used only when the previous four filters are diligently applied.