Free tool
Margin of safety calculator for stocks
The margin of safety is the gap between what you estimate a share is worth and what it costs. The idea, from Benjamin Graham: only buy when the price sits well below your estimate, so that an error in the estimate does not turn into a loss.
Margin of safety
20.0%
Upside to your estimate: 25.0%. Maximum price for a 25% margin: $75.00.
The margin of safety formula
Margin of safety = 1 − share price ÷ intrinsic value. The maximum price you should pay for a target margin is intrinsic value × (1 − target margin). Upside, the other way of looking at the same gap, is intrinsic value ÷ share price − 1.
What margin of safety to require
Many value investors look for 20% to 50%. Ask for more when the business is cyclical, indebted or hard to forecast, and when your intrinsic value rests on optimistic assumptions; a stable business with a long record can justify a smaller margin.
Worked example
If you estimate a share is worth $100 and it trades at $80, your margin of safety is 20% and the upside to your estimate is 25%. To buy with a 25% margin of safety, you would pay at most $75.00.
Frequently asked questions
What is a good margin of safety?
There is no universal number. 20% to 50% is common; the less predictable the business and the less certain your estimate, the larger the margin you need.
What is the difference between margin of safety and upside?
They describe the same gap from two sides. A share worth $100 trading at $80 has a 20% margin of safety (measured from the value) and 25% upside (measured from the price).
Where does the intrinsic value come from?
From your own valuation. A discounted cash flow model is the most common way to estimate it — you can use the DCF calculator linked below.
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Educational tool. Results depend entirely on your inputs and are not investment advice.