Margin of Safety

We demand a 15–20% cushion against misjudgment and external shocks. Price matters as much as quality.

The Concept of Margin of Safety

The margin of safety is one of the most important concepts in value investing, introduced by Benjamin Graham and refined by Warren Buffett. It is the difference between the price you pay for an asset and your estimate of its intrinsic value.

If you estimate a business is worth $100 per share and you pay $80, your margin of safety is 20%. If your estimate turns out to be wrong — if the business is actually worth only $90 — you still have not overpaid. The margin of safety absorbs analytical error.

Why 15–20%?

We require a minimum margin of safety of 15–20% on every investment. This level reflects our acknowledgment that:

1. Our estimates are imprecise. Even the most rigorous analysis involves assumptions about the future that may not prove correct.

2. External shocks happen. Recessions, regulatory changes, competitive disruptions, and macroeconomic surprises can affect business values in ways that no model anticipates.

3. The best businesses are also the most sought after. Exceptional businesses rarely trade at bargain prices. When they do — typically during market panics or when a business faces a temporary but solvable problem — we act decisively.

Quality Still Matters

A margin of safety is not a substitute for buying a good business. A deeply discounted poor business is still a poor business. We apply our margin of safety requirement on top of the other filters — durable moat, capital-light model, trustworthy management — not instead of them.

Price matters as much as quality. Both must be right before we invest.