Concept
In Finance, the margin of safety is an investment principle in which the investor minimizes risk by buying securities only when the market price is below its intrinsic value. In an everyday example, suppose you are giving the option to buy a Toyota Corolla 2017 for a price of $14,000. According to this principle, it would be safe to buy this car as investment because its real value is at least $18,500.
Calculation
Margin of safety (safety margin) is calculated by the difference between the intrinsic value and its market price.
An Excellent Case Study of Warren Buffet Applying The Concepts of Margin of Safety
http://www.iwarrenbuffettquotes.com/warrenbuffett-americanexpress/
Want to learn even more about Margin of Safety?:
http://www.timelessinvestor.com/wp-content/uploads/2011/12/chapter_20.pdf
http://www.investopedia.com/terms/m/marginofsafety.asp#ixzz4s0wH4Q7E
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