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Margin of safety

How far the price must sit from fair value before Angie calls it anything but fair: at least this much upside to be undervalued, at least this much downside to be overvalued. It exists because the estimate itself can be wrong.

Updated 2026-09-03

The margin of safety is the discount below fair value a stock has to reach before Angie will call it undervalued. It exists for one reason: the estimate of fair value is itself uncertain, so buying at exactly the estimate leaves no room to be wrong.

The idea is Benjamin Graham's and it is the most durable idea in value investing. If you calculate a business is worth $100 a share and you pay $100, you need your analysis to be correct. If you pay $70, your analysis can be substantially wrong and you still do not lose money. The margin is not a prediction. It is protection against your own error.

How Angie applies it

UNDERVALUED when price ≤ intrinsic value × (1 − margin of safety)

Default 10 percent, so a stock is UNDERVALUED at 10 percent below fair value, OVERVALUED at 10 percent above, and FAIR in the band between.

Ten percent is a deliberately narrow band for a screener. It is wide enough that small estimation noise does not flip a verdict, and narrow enough that the board still separates names. It is not a recommendation about how much margin you personally should demand before buying something, and the margin of safety control on the screener exists so you can set your own.

A wider margin makes Angie stricter, not safer. Demanding 40 percent below fair value on a high-quality compounder mostly means never owning one. The margin should scale with how uncertain the estimate is, which is what valuation confidence is trying to tell you.

See also

  • Intrinsic value — Angie's estimate of what one share is worth, built from the company's own cash rather than from what anyone will pay. Compare it to today's price.
  • Upside — How far intrinsic value sits above or below today's price. Positive means the model thinks the stock is cheap, negative means expensive.
  • Verdict — Undervalued, fair or overvalued, decided by where the price sits against intrinsic value once the margin of safety is applied.

← See this one in the deck

Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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