Valuation metric

Margin of Safety

Margin of safety is the gap between a stock's estimated intrinsic value and its market price. Introduced by Benjamin Graham, it's the buffer that protects an investor when estimates turn out to be wrong. The bigger the discount to fair value, the larger the cushion against mistakes and bad luck.

Formula

Margin of Safety = (Intrinsic Value − Market Price) / Intrinsic Value

How to interpret it

A 30% margin of safety means you're buying at 70% of estimated fair value. Larger margins give more protection but are rarer; many value investors look for at least 20–50%. A negative margin means the price is above your fair-value estimate — no cushion at all.

Example

If you estimate a stock's intrinsic value at $100 and it trades at $65, the margin of safety is (100 − 65) / 100 = 35%. Even if your valuation is somewhat too optimistic, that 35% buffer absorbs part of the error.

Common uses

Require a minimum discount to fair value (e.g. 20–30%) before buying a stock.
Rank candidate stocks by how large a cushion they offer against estimate errors.
Protect against valuation mistakes and bad luck by buying well below intrinsic value.
Decide when a previously expensive stock has fallen enough to become attractive.

Limitations

The margin of safety is only as reliable as the intrinsic value behind it — a precise-looking percentage built on shaky assumptions is false comfort.
It reduces risk but never eliminates it, and it can't protect against a fundamentally flawed business or a permanently changed industry.

In Fin Screener

Fin Screener calculates a margin of safety for each stock by comparing its blended fair-value estimate with the current price, and uses it to inform the buy/sell strategy zones.

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