Concepts · fundamentals
Margin of safety
Buy with enough room for error that being wrong still leaves you whole. The single most useful idea in investing.
Margin of safety is the gap between what you pay and what something is worth. The wider the gap, the more room you have to be wrong — about the business, the timing, the macro — and still come out fine.
Why it matters
Every estimate of value is uncertain. You don’t know future cash flows; you guess them. Margin of safety is the discipline of refusing to let your guess be the thing standing between you and a loss. If a company is worth roughly ₹100 and you pay ₹65, you can be 20% too optimistic and still not lose money.
How to use it
- Estimate a range of value, not a point.
- Buy near the bottom of that range, not the top.
- The less certain you are, the wider the margin you demand.
It is unglamorous and it works. Most permanent losses come from paying full price for a story and having the story not arrive.