Free Margin of Safety Calculator
Calculate the margin of safety between a stock's intrinsic value and its current price, and find the maximum price to pay for a target margin.
The price is 30% below your intrinsic value estimate.
To buy with a 30% margin of safety, pay no more than $70.00 per share.
What the margin of safety is
The margin of safety is the gap between what a business is worth and what you pay for it. Every intrinsic value estimate rests on assumptions that can be wrong, and the future is uncertain even when the analysis is sound. Buying well below your estimate of value gives you room to be wrong and still do acceptably. It is the single idea Benjamin Graham insisted mattered most, and it is what separates investing from forecasting.
How to use this calculator
- Enter your estimate of intrinsic value per share. It comes from a method such as a discounted cash flow or owner earnings, not from the market price.
- Enter the current share price. The calculator shows how far below (or above) value the price sits.
- Set a target margin and the calculator returns the highest price you could pay to secure it.
How wide a margin to demand
The right margin depends on how confident you can be in the intrinsic value. A stable, predictable business with a long record lets you act on a smaller margin. A cyclical, complex, or fast-changing business demands a wider one, because the estimate is shakier. Many value investors look for 25% to 50% on an average business and accept less on a genuinely high-quality compounder. The harder the business is to value, the larger the buffer should be.
The margin of safety is only as good as the value estimate
A large discount to a wrong intrinsic value is not safety, it is false comfort. The discipline only works if the value estimate is honest and conservatively built. Treat intrinsic value as a range rather than a single number, and measure the margin against the low end of that range. That habit keeps the margin of safety doing its real job: protecting you from your own optimism.
Related calculators
- DCF calculator — produce the intrinsic value estimate this calculator measures the price against.
- Owner earnings calculator — value a stable business on the cash it earns for owners, then apply a margin of safety.
Frequently asked questions
- What is the margin of safety?
- The margin of safety is the gap between your estimate of a business's intrinsic value and the price you pay for it. Buying well below intrinsic value gives you a buffer against errors in your estimate and against bad luck. It is the central idea Benjamin Graham contributed to investing.
- How do I calculate the margin of safety?
- Subtract the current price from your intrinsic value estimate, then divide by the intrinsic value. The result is the discount as a percentage. An intrinsic value of 100 and a price of 70 is a 30 percent margin of safety. A negative result means you would be paying a premium to value, with no margin at all.
- What is a good margin of safety?
- It depends on the quality and predictability of the business. Many value investors look for 25 to 50 percent on an average business, and accept a smaller margin on a genuinely high-quality, predictable compounder. The harder the business is to value, the wider the margin you should demand.
- How is the margin of safety different from intrinsic value?
- Intrinsic value is your estimate of what the business is worth. The margin of safety is the discount you require below that value before you buy. Intrinsic value comes from a method such as a discounted cash flow or owner earnings; the margin of safety is the discipline applied on top of it.
This calculator is for education and research only. It is not investment advice and it does not recommend buying or selling any security. The output depends entirely on the assumptions you enter.