What is a margin of safety in investing?

The margin of safety is the difference between a stock's price and its estimated intrinsic value, expressed as a percentage. Buying below intrinsic value provides a cushion against errors in your estimate.

How do you calculate margin of safety?

Subtract the price from the intrinsic value, then divide by the intrinsic value. For example, an £80 intrinsic value and a £50 price gives a margin of safety of 37.5%.

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What is a margin of safety?

The margin of safety is the cushion between what you pay and what something’s worth. Graham called it the central concept of investing — here’s why, and how to calculate it.

By Nathan Wickham-Hurd · Founder, Oak Growth · Last reviewed June 2026

The idea

The margin of safety is the gap between what you pay for a stock and what it's actually worth. Buy well below intrinsic value and you have a cushion; buy at or above it and you have none. Benjamin Graham called this the central concept of sound investing, and it runs through everything Oak Growth does.

The formula

Margin of safety = ( Intrinsic value − Price ) ÷ Intrinsic value

Worked example

You estimate a company's intrinsic value at £80 a share, and it currently trades at £50:

( £80 − £50 ) ÷ £80 = 37.5%

You're buying at a 37.5% discount to your estimate of fair value — that discount is your margin of safety.

Why it matters

Every estimate of value is uncertain — the future never arrives exactly as forecast. The margin of safety is your protection against being wrong: the bigger the discount, the more your assumptions can miss and you'll still come out fine. It turns investing from a bet on being right into a discipline that survives being partly wrong.

The classic way to picture it: if you're building a bridge for trucks that weigh up to 10 tonnes, you build it to hold 30. You don't drive 30-tonne trucks over it — the extra capacity is there for the unexpected. Buying with a margin of safety is the same instinct applied to a share price.

How big should it be?

It depends on how confident you are in the business. A stable, predictable company might justify a smaller margin; a harder-to-forecast one demands a larger one. The less certain the future, the bigger the discount you should insist on.

Oak Growth shows the margin of safety on every stock, calculated from its DCF intrinsic value — the full method is in our methodology.

Put this into practice — open the screener →