1. What is Margin of Safety?

The Margin of Safety (MOS) is a principle of investing where an investor only purchases securities when their market price is significantly below their intrinsic value. This difference provides a cushion against errors in calculation or market volatility.

2. How Does the Calculator Work?

The calculator uses the Margin of Safety formula:

Where:

• \( Intrinsic\ Value \) — The calculated true value of the asset (USD)
• \( Market\ Price \) — The current trading price of the asset (USD)

Explanation: The formula calculates what percentage the market price is below the intrinsic value. A higher MOS indicates a larger safety buffer.

3. Importance of Margin of Safety

Details: Margin of Safety is crucial for value investors as it provides protection against errors in intrinsic value estimation and market downturns. Benjamin Graham recommended a MOS of at least 30-50%.

4. Using the Calculator

Tips: Enter the intrinsic value and current market price in USD. Both values must be positive numbers, and intrinsic value should be greater than market price for a positive MOS.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Margin of Safety percentage?
A: Generally, 20-30% is considered minimum, while value investors often look for 30-50% or more.

Q2: How is intrinsic value calculated?
A: Intrinsic value can be calculated through various methods like discounted cash flow analysis, dividend discount models, or asset-based valuation.

Q3: Can MOS be negative?
A: Yes, a negative MOS means the market price exceeds the intrinsic value, suggesting the asset may be overvalued.

Q4: Does MOS guarantee investment success?
A: No, it only reduces risk. The intrinsic value calculation might be incorrect, or market conditions might change.

Q5: Should MOS be used for all types of investments?
A: It's most applicable to value investing in stocks and bonds. Growth investing or speculative assets may not fit this model.