PSX Clarity
Sign inStart free
M
Glossary · PSX term

Margin of safety.

Margin of safety is the gap between a stock's estimated intrinsic value and a lower price you pay.

Definition

Buying well below your estimate of intrinsic value gives a cushion against errors and bad luck. The larger the discount, the more protection if your assumptions prove too optimistic.

Worked example

Paying Rs. 70 for a stock you value at Rs. 100 gives a 30% margin of safety.

Related on PSX Clarity

Term
Intrinsic value
Term
Discounted cash flow (DCF)
Term
Value investing

More glossary terms

Browse all 199 terms →
Market capitalization
Market capitalization is the total market value of a listed company. It is calculated by multiplying share price by shares outstanding and helps investors compare company size.
Market breadth
Market breadth measures how many stocks are rising versus falling, beyond just the index level.
Market sentiment
Market sentiment is the overall mood of investors toward the market, ranging from fearful to greedy.
Market halt
A market halt is a temporary, exchange-wide pause in trading triggered by a large index move.
Market order
A market order buys or sells immediately at the best available current price.
Margin financing
Margin financing lets you buy shares using borrowed money, putting up only part of the value yourself.
Margin call
A margin call is a demand to add funds when your leveraged position loses value past a limit.
Mutual fund
A mutual fund pools money from many investors to buy a managed portfolio of assets.
Material information
Material information is any fact that could reasonably influence a stock's price or an investor's decision.