Margin of safety is the difference between the intrinsic value of a stock or a company and its quoted market value.
Margin of Safety = Intrinsic Value – Market Value
If we calculate the (intrinsic) value of a stock to be only slightly higher than its price, we’re not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.
Warren Buffett, Chairman’s Letter To the Shareholders of Berkshire Hathaway, 1996