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Margin of Safety Formula:
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The Margin of Safety (MOS) is a financial metric that shows the difference between a stock's intrinsic value and its current market price, expressed as a percentage. It helps investors determine how much "safety buffer" exists in their investment.
The calculator uses the Margin of Safety formula:
Where:
Explanation: The formula calculates what percentage below intrinsic value the stock is currently trading at. A higher percentage indicates a larger safety margin.
Details: Margin of Safety is a key concept in value investing. It provides a buffer against errors in intrinsic value estimation and market volatility. Many value investors look for at least a 20-30% MOS before investing.
Tips: Enter the stock's intrinsic value (your estimate of its true worth) and current market price. Both values must be positive numbers, with intrinsic value greater than the current price for a positive MOS.
Q1: What is a good Margin of Safety percentage?
A: Generally, 20-30% is considered good, but this depends on your risk tolerance and confidence in your intrinsic value calculation.
Q2: Can Margin of Safety be negative?
A: Yes, if the current price is above your estimated intrinsic value, the MOS will be negative, indicating the stock may be overvalued.
Q3: How do I determine intrinsic value?
A: Common methods include discounted cash flow analysis, earnings multiples, or asset-based valuation. This requires fundamental analysis of the company.
Q4: Why do different investors have different MOS for the same stock?
A: Different investors may calculate intrinsic value differently based on their assumptions about growth rates, discount rates, and other factors.
Q5: Is a higher MOS always better?
A: Not necessarily. An extremely high MOS might indicate either a great bargain or that your intrinsic value estimate is too optimistic.