Margin of Safety Calculator
Calculate the margin of safety between a stock's intrinsic value and its market price.
What is this tool?
Margin of Safety is Warren Buffett's grandfather Ben Graham's core investing principle: buy stocks only when their market price is significantly below your calculated intrinsic value. The margin acts as a buffer against errors in valuation assumptions, unexpected negative events, and market downturns. A 30% margin of safety means you'd buy a stock trading at $70 when you estimate its intrinsic value at $100. The wider the margin, the lower the risk of permanent capital loss.
How to use
- 1
Estimate intrinsic value
Input your calculated intrinsic value per share.
- 2
Enter current price
Type the stock's current market price.
- 3
Set margin target
Choose your desired minimum margin of safety (Graham recommended 33%+).
- 4
Evaluate the deal
See if the current price meets your margin of safety requirement.
Frequently Asked Questions
What is the margin of safety?
The margin of safety is the difference between a stock's intrinsic value and its market price, expressed as a percentage. It's the foundation of value investing. If you estimate a company is worth $100/share and it trades at $70, you have a 30% margin of safety. The concept protects against both valuation errors and black swan events.
How much margin of safety do I need?
Ben Graham recommended at least 33% (buy at 2/3 of intrinsic value). Modern value investors typically use 20-30% for quality companies and 40%+ for riskier businesses. The required margin depends on your valuation confidence, business stability, and portfolio concentration. For a single-stock position, use a wider margin than for a diversified portfolio.
Why does intrinsic value estimation have errors?
Intrinsic value calculations rely on assumptions about future earnings growth, discount rates, and terminal values. These are inherently uncertain. A company's growth rate might be 8% instead of the assumed 10%. The market could experience an unexpected recession. A wider margin of safety accommodates these uncertainties without risking permanent capital loss.