Margin of Safety

Margin of safety is a principle of investing where an investor purchases securities at a price significantly below their intrinsic value, providing a cushion against potential losses if the market moves against the investment. The concept was popularized by Benjamin Graham and is central to value investing. By purchasing securities with a margin of safety, investors aim to protect themselves from downside risk while still having the potential for upside gains.

Example

An investor believes a stock is worth $100 based on fundamental analysis but buys it at $70, providing a 30% margin of safety against potential market downturns.