The concept of a margin of safety is one of the foundations of value investing. It means buying a company for less than its intrinsic value, giving yourself a buffer in case your estimates are wrong or the business faces unexpected challenges.
Benjamin Graham emphasized this idea by looking for stocks trading at very low prices relative to their assets and earnings, such as companies selling for less than two-thirds of their net asset value. While Warren Buffett later moved away from Graham’s strict focus on cheap assets, he kept the same underlying principle: never overpay.
Instead of simply buying the cheapest stocks, Buffett prefers buying high-quality businesses at prices below what they are worth. In both approaches, the goal is the same, to reduce the risk of losing money by ensuring there is a meaningful gap between a company’s value and the price paid for its shares.