The Margin of Safety

The Margin of Safety is a risk management concept used in investing. It represents the difference between an asset’s current market price and its estimated intrinsic value—essentially, how much cheaper the asset is compared to what it's truly worth. A larger margin provides a cushion against errors in valuation or unforeseen risks, reducing the chance of loss. Think of it as a safety buffer that allows investors to buy with confidence, knowing there's room for error. This approach helps minimize potential losses and encourages disciplined, cautious investing.