In investing, margin of safety refers to purchasing stock in a company only when the market value for those shares is below the intrinsic value of the company. In other words, the margin of safety equals the intrinsic value minus the lower market value. Buying below the margin of safety minimizes the risk to the investor.Margin of safety is usually expressed as a percentage and calculated as: Margin of Safety = 1 – Current Stock Price/Intrinsic Stock Price. So if an investor is considering buying ABC Company stock, and ABC’s current stock price is $20, but the investor thinks it has an intrinsic value of $25 per share, the margin of safety is: ABC Margin of Safety = 1 – ($20/$25) = 1 – .80 = 20% Benjamin Graham, who is known as the “Father of Value Investing” and was a mentor to Warren Buffett, first proposed the margin of safety concept. Implicit in margin of safety is the assumption that an investor can make an accurate prediction of a company’s intrinsic value. The process for determining a company’s intrinsic value is often based on a highly detailed analysis of a company’s assets and future earnings. Still, the method involves making predictions of future earning and other assumptions that may not come true. Therefore, the intrinsic value may be incorrect. But by only making investments where there is a large enough margin of safety, the investor builds in a cushion should his intrinsic value calculations prove to be wrong.