What Is a Margin of Safety in Investing?
A margin of safety is the gap between what you think a stock is worth and what you pay for it, so a miss in your estimate does not turn into a loss. Benjamin Graham made it the central idea of investing, and this site measures it as (DCF value − price) ÷ DCF value. As of October 2026, 72 of the 224 stocks it can value trade below their baseline DCF value, and the median stock sits 34% above it.
How is the margin of safety calculated?
Margin of safety = (intrinsic value − price) ÷ intrinsic value × 100
Intrinsic value here is a discounted cash flow (DCF) estimate: future free cash flow per share, growing at a rate that fades to a terminal rate, discounted back at your required return. The site's neutral baseline is 8% growth fading to 2.5% over 10 years with a 10% discount rate, so each $1 of free cash flow per share is worth about $17.08.
Example: a company producing $5 of free cash flow per share has a baseline value of about $85.38. The margin of safety depends on the price:
| Price paid | Margin of safety | Reading |
|---|---|---|
| $60 | 30% | Price below value: a cushion |
| $75 | 12% | Price below value: a cushion |
| $85 | 0% | Price below value: a cushion |
| $100 | -17% | Price above value: no cushion |
| $120 | -41% | Price above value: no cushion |
Use the Intrinsic Value Calculator to run your own numbers, and read how the margin of safety is calculated. The reverse question, what growth a price assumes, is in what growth does a share price imply.
Why does the estimate matter so much?
A DCF is sensitive to its inputs. The same $5 of free cash flow gives these values as the growth and discount rate change:
| Growth fading to 2.5% | Discount 9% | Discount 10% | Discount 11% |
|---|---|---|---|
| 6% to start | $91 | $79 | $69 |
| 8% to start | $99 | $85 | $75 |
| 10% to start | $107 | $92 | $81 |
The range is wide, which is exactly why a cushion matters: if your estimate is a little optimistic, a margin of safety absorbs the error.
Where do tracked stocks stand today?
Of 224 stocks with positive free cash flow and a sector the model fits, here is how far each sits from its baseline value:
Tracked stocks by margin of safety. Green bars are priced below the baseline value, coral above. Banks, insurers, REITs and utilities are excluded.
A very large negative number usually means the neutral baseline does not fit that company's cash flow (heavy reinvestment, a thin quarter), not that the market is wrong. The Margin of Safety Explorer lists them all.
What a margin of safety does not do
- It does not make a bad business safe: a cheap stock with weak cash flow is a value trap.
- It is only as good as the cash flow behind it, which can swing in a single year.
- It is a way to be wrong less painfully, not a forecast of what the price will do.
- It is the opposite of a price that assumes everything goes right: see what ARK's Tesla 2031 target assumes.
Margin of safety FAQ
Who invented the margin of safety?
Benjamin Graham, who made it the central concept of investment in The Intelligent Investor. Warren Buffett, his student, still describes it as the foundation of value investing.
What is a good margin of safety?
There is no single number. A larger cushion protects more against errors in the estimate, and it should be larger for less predictable businesses. On this site any positive margin on the neutral baseline means the price is below the DCF value.
Is margin of safety the same as a discount to fair value?
It is the same idea. The margin of safety is the discount expressed as a share of the value, so a 30% margin means you pay 70 cents for each dollar of estimated value.
Why does this site exclude banks and REITs from its margin of safety?
A free-cash-flow DCF does not fit them: a bank's cash flow moves with deposits and loans, REITs are valued on property income and utilities reinvest nearly all their cash. They are left out of every DCF on the site.
Can a stock have a negative margin of safety and still be a good investment?
Yes, if the growth the price assumes is delivered or beaten. A negative margin means the price already assumes more than the neutral baseline, not that the investment will fail.