Generally, the majority of value investors will NOT invest in a security unless the MOS is calculated to be around ~20-30%. Instead of shorting stocks or purchasing put options as a hedge against their portfolio, a large proportion of value investors view the MOS concept and long holding periods as the most effective approach to mitigating investment risk.Ĭoupled with a longer holding period, the investor can better withstand any volatility in market pricing. if the share price were to decline substantially post-purchase. What is the Role of Margin of Safety in Value Investing?įrom a risk standpoint, the margin of safety serves as a buffer built into their investment decision-making to protect them against overpaying for an asset - i.e. In this particular example, the MOS is 25% - meaning that the share price can drop by 25% before reaching the estimated intrinsic value of $8. Suppose a company’s shares are trading at $10, but an investor has estimated the intrinsic value at $8. Intrinsic Value → The implied value of a company’s equity on a per share based on the fundamentals of the issuer.
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