Investing term
What is Margin of safety?
The discount you demand below your fair-value estimate, so you can be wrong and still not lose.
Margin of safety is the discount you insist on below your estimate of a stock's fair value before buying — a buffer that protects you when (not if) your estimate turns out too optimistic. It's the core of value investing: since the future is uncertain, you build in room to be wrong and still avoid a loss. The bigger the uncertainty, the bigger the margin you demand.
For example
You think a stock is worth $100 but only buy at $70 — that 30% margin of safety means even if you overestimated, you've still likely paid a fair price.
Margin of safety is taught hands-on in Stage 15 — Valuation for Investors.
See the lesson →