Margin of safety
Margin of Safety
Valuation RatiosThe gap between a stock's estimated intrinsic value and its market price. Buying below intrinsic value creates a cushion against errors in the estimate.
Formula
Margin of Safety = (Intrinsic Value - Price) / Intrinsic Value
Why it matters
Every valuation is uncertain. The margin of safety is the discipline that admits this: it demands a discount large enough that being somewhat wrong still leaves an acceptable outcome.
Indian example
Related terms
Learn the concept
Market ratios →From the research
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