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What margin of safety is, how to calculate it, the core concept of value investing — a guide.
Published by The Retail Trader · AUG 08, 2026 · Features
What margin of safety is, how to calculate it, the core concept of value investing — a guide.
Margin of safety = the difference between intrinsic value and market price. If, according to your calculation, a stock's value is ₹100 and the market price is ₹70, then the margin of safety is ₹30.
Warren Buffett: "Price is what you pay, value is what you get."
Keep these three points in mind:
• Intrinsic Value: ₹100 (according to your calculation)
• Market Price: ₹70
• Margin of Safety: (₹100 - ₹70) / ₹100 = 30%
Even if you are wrong, the margin of safety saves you.
30% margin = Even if the stock falls 30%, your money is safe (break-even).
Bought at a 30% discount → If the stock goes to ₹100 → 43% return.
Keep these five points in mind:
• Stable large cap — 20-30%
• Mid cap — 30-40%
• Small cap — 40-50%
• Cyclical stock — 50%+
• Turnaround story — 50%+
Keep these seven points in mind:
• Reliance intrinsic value: ₹3,000
• Market price: ₹2,100
• Margin of safety: 30%
• If correct: Stock goes to ₹3,000 → 43% return
• If wrong (value is ₹2,500): Still ₹400 upside → 19% return
• If very wrong (value is ₹2,100): Break even
Keep these points in mind:
• 📌 MARGIN OF SAFETY
• 📊 Intrinsic value - Market price = Safety buffer
• 📊 Warren Buffett's core concept
• 📊 Protection against errors
• CALCULATION:
• 📊 (Intrinsic Value - Market Price) / Intrinsic Value
• 📊 You need a 30%+ margin
• HOW MUCH:
• 📊 Large cap: 20-30%
• 📊 Mid cap: 30-40%
• 📊 Small cap: 40-50%
• 📊 Cyclical: 50%+
• WHY IT MATTERS:
• ✅ Protection against calculation errors
• ✅ Downside protection
• ✅ Upside potential
• ✅ Peace of mind
Keep these points in mind:
• Value Investing | PE Ratio | How to Analyze a Stock
The Retail Trader — educational market analysis. Not investment advice.
This article is for educational purposes only — it contains no buy or sell recommendation, no claim of guaranteed returns, and no advisory. Rules, rates and mechanics change from time to time at the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.