Margin of Safety
Margin of Safety · Safety Buffer · MoS
The gap between a stock's intrinsic value and the price you pay for it — protection against errors in estimation.
What it is
Margin of Safety (MoS) is a key concept in value investing, popularized by Benjamin Graham and Warren Buffett.
MoS = (Intrinsic Value − Market Price) / Intrinsic Value × 100%
Example: intrinsic value $100, market price $70 → MoS = 30%.
MoS protects the investor against:
- →Errors in DCF assumptions
- →Unforeseen negative events
- →Excessive optimism in projections
Why track it
No DCF model is precise — we always work with estimates. MoS is the "safety cushion" that absorbs mistakes. The greater the uncertainty about a company's future, the larger the MoS you should require.
Conservative investors typically require a MoS of 20–40% before buying.
Real-world example
If your base DCF gives MSFT $376 and the stock trades at $310, MoS ≈ 18%. If the stock is at $382 (≈ base value), MoS ≈ 0% — entry risk is higher because you are paying full base-scenario value.
“The margin of safety is always dependent on the price paid.”