Margin of Safety Calculator
Calculate the margin of safety for your investments. This key value investing principle, popularized by Benjamin Graham, helps determine how much room for error exists between a stock's market price and its intrinsic value.
Valuation Inputs
Margin of Safety Results
Margin of Safety:
0.00%
Intrinsic Value:
$0.00
Market Price:
$0.00
Investment Analysis
Upside Potential:
0.00%
Safety Rating:
N/A
Investment Decision:
N/A
Business Insights
Risk Level:
N/A
Graham's Guideline:
N/A
Value Investing Status:
N/A
Understanding Margin of Safety
Margin of Safety is a fundamental principle of value investing, introduced by Benjamin Graham in his seminal work "The Intelligent Investor." It represents the difference between a stock's intrinsic value and its market price, providing a buffer against errors in valuation and market fluctuations.
Margin of Safety Formula
Basic Formula
- Margin of Safety = (Intrinsic Value - Market Price) / Intrinsic Value × 100
- Expressed as a percentage
- Positive MOS = Undervalued stock
- Negative MOS = Overvalued stock
Alternative Formula
- Margin of Safety = 1 - (Market Price / Intrinsic Value)
- Decimal form (multiply by 100 for percentage)
- Same result as percentage formula
- Easier for some calculations
Why Margin of Safety Matters
Risk Management
The cornerstone of intelligent investing
Downside Protection
- Buffers against valuation errors
- Protects against market declines
- Provides psychological comfort
- Reduces emotional decision making
Upside Potential
- Room for market recognition
- Potential for significant gains
- Mean reversion opportunities
- Long-term compounding benefits
Graham's Margin of Safety Guidelines
| Margin of Safety | Graham's Assessment | Investment Action | Risk Level |
|---|---|---|---|
| 50%+ | Exceptionally Undervalued | Strong Buy | Very Low Risk |
| 30-50% | Significantly Undervalued | Buy | Low Risk |
| 20-30% | Moderately Undervalued | Accumulate | Moderate Risk |
| 10-20% | Slightly Undervalued | Consider | Moderate-High Risk |
| 0-10% | Fairly Valued | Hold/Wait | High Risk |
| < 0% | Overvalued | Avoid/Sell | Very High Risk |
Margin of Safety in Practice
Portfolio Construction
- Larger positions in high MOS stocks
- Diversification across undervalued assets
- Regular rebalancing
- Position sizing based on MOS
Risk Management
- Stop losses at MOS depletion
- Portfolio-wide MOS monitoring
- Stress testing scenarios
- Maximum drawdown limits
Common Margin of Safety Mistakes
Overconfidence in Valuation
- Assuming intrinsic value is exact
- Ignoring estimation errors
- Not considering black swan events
- Underestimating market irrationality
Ignoring Market Conditions
- Buying during market panics
- Not considering liquidity
- Ignoring sector rotations
- Market timing vs value timing
Margin of Safety vs Other Metrics
vs P/E Ratio
- MOS considers intrinsic value
- P/E is relative valuation
- MOS provides absolute measure
- P/E needs industry comparison
vs Graham Number
- Graham Number is intrinsic value
- MOS measures gap to intrinsic value
- Graham Number is conservative estimate
- MOS quantifies safety buffer
Key Takeaways for Margin of Safety
- Margin of Safety = (Intrinsic Value - Market Price) / Intrinsic Value × 100
- A positive margin of safety indicates the stock is trading below its intrinsic value
- Benjamin Graham recommended a minimum 30-50% margin of safety for investments
- Margin of safety provides downside protection and reduces investment risk
- Larger margins of safety allow for greater position sizes in a portfolio
- Margin of safety should be recalculated regularly as market prices change
- The concept applies to all asset classes, not just stocks
- Margin of safety is the cornerstone of successful value investing