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WHAT IS MARGIN OF SAFETY?

Margin of Safety is the term popularized by Mr. Benjamin Graham (known as "the father of value investing") and his followers, most notably Mr. Warren Buffett. In simple words, margin of safety refers to the difference between value and prices, when securities are bought at a price significantly below their intrinsic value. Higher the difference between value and price (i.e., value higher than price), higher the margin of safety. 


While Margin of safety allows an investment to be made with minimal downside risk, it doesn't guarantee a successful investment. However, it does provide room for error/cushion against an analyst's judgment on valuation of securities. Determining a company's "true" worth (its intrinsic value) is anyway highly subjective.

There is no universal standard to determine how wide the "margin" in margin of safety should be. Each investor must come up with his or her own number.

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