Last updated: March 2025
Quick Answer
Margin of Safety = (Intrinsic Value − Market Price) / Intrinsic Value × 100. Aim for at least 25-30% as a buffer against valuation errors.
Key Takeaways
- ✓ Margin of Safety = (Intrinsic Value − Market Price) ÷ Intrinsic Value × 100
- ✓ A margin of 25%+ is generally considered prudent for value investing
- ✓ It protects against valuation errors, market downturns, and unforeseen risks
- ✓ Benjamin Graham popularized this concept in "The Intelligent Investor"
What Is the Margin of Safety?
The margin of safety measures the difference between a stock's intrinsic value and its market price. The wider the gap, the larger your buffer against mistakes. Think of it as buying dollar bills for 70 cents.
How to Calculate It
Margin of Safety = (Intrinsic Value − Current Price) ÷ Intrinsic Value × 100
If intrinsic value is $100 and market price is $70, your margin is 30%.
What Is a Good Margin?
Benjamin Graham recommended 33%+. Warren Buffett typically looks for 25%+. Stable blue-chips may warrant 15–20%; volatile stocks need 40%+.
Determining Intrinsic Value
- Discounted Cash Flow (DCF) — Projects and discounts future cash flows
- Earnings-based valuation — P/E ratios vs. historical and peer averages
- Asset-based valuation — Net asset value per share
See our EBITDA Calculator and Return on Equity Calculator for company-level analysis.
Frequently Asked Questions
What is margin of safety in investing?
Margin of safety is the difference between a stock's intrinsic (true) value and its market price. If you calculate a stock is worth $100 but buy it at $70, your margin of safety is 30%.
What is a good margin of safety?
Warren Buffett recommends at least 25-30%. More conservative investors aim for 40-50%. The higher the margin, the more protection against errors in your valuation.