Margin of safety
Discount applied to a ceiling so you do not buy at the limit.
Definition
Margin of safety is an extra discount on the calculated ceiling (e.g. 20%). It lowers your max buy price to absorb estimation error in dividends, EPS, or yield. Higher margin means a more conservative ceiling.
Tools and guides
Related terms
- Price ceiling— Your personal maximum buy price for a holding.
- Graham number / Graham ceiling— Educational ceiling from EPS and book value: √(22.5 × EPS × BVPS).
- Dividend yield— Annual distributions divided by price paid.