Margin of safety

Margin of safety is the cushion between our estimate of intrinsic value and the price at which we are willing to recommend a stock. The concept comes from Benjamin Graham: because every valuation is an estimate built on assumptions that may be wrong, no single fair-value number should be acted on at face value. The margin of safety converts that humility into a price discipline. We scale margin of safety dynamically by business quality: 15% for wide-moat names with 8–10/10 business-quality scores; 20% for solid franchises at 6–7/10; 25% for average businesses at 4–5/10; 30%+ for low-quality, cyclical, or low-confidence cases. We also widen the band when accounting quality fails the gate, when terminal-value concentration exceeds 60% of fair value, or when the consensus-divergence diagnostic flags a >30% gap that we cannot fully reconcile. The practical effect is asymmetric: we will pass on high-quality businesses that are fairly priced and only act when the discount is wide enough to absorb both forecast error and adverse outcomes.