The definition in one line
Margin of safety is the discount between a stock's estimated fair value and its current price. Buying well below fair value leaves room to be wrong about the estimate and still avoid a loss — the concept Benjamin Graham put at the centre of value investing.
How it is calculated
The margin is the gap to fair value as a percentage of fair value: margin of safety = (fair value − price) ÷ fair value × 100. A positive margin means the stock trades below fair value; a negative margin means it trades above. The larger the positive margin, the cheaper the stock relative to the estimate.
Why it matters
Fair value is an estimate, not a fact. A margin of safety converts that uncertainty into a cushion: if the true value turns out lower than estimated, a big enough discount can still protect the downside. It is a risk control, not a return guarantee — a cheap stock can stay cheap.
Related tools
Work through it step by step in the Valuation course lesson on the margin of safety.
See how fair value is estimated in the fair value methodology explainer, or browse the cheapest names by margin of safety on the margin-of-safety board.