Fundamental Glossary / Valuation Ratios
Margin of Safety
The gap between estimated intrinsic value and the price you pay. It is the room for error in the estimate.
Formula
A common expression is (intrinsic value - price) / intrinsic value.
What it means
Graham's margin of safety is the idea that you do not need a perfect forecast if you buy far enough below a cautiously estimated value. The discount absorbs bad luck, a wrong assumption, or a weak year.
The same phrase in engineering means a design that can carry more load than it is expected to see. In investing it means the same thing: capacity for surprise.
How to read it
A 30% gap is not automatically safer than a 15% gap if the 30% gap uses an aggressive value. The safety is in the quality of the estimate and the size of the discount together.
What to watch
Margin of safety is not a floor under the share price. The market can fall further. It is a discipline on the buy price, and it fails when intrinsic value was never as high as the spreadsheet said.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.