The price I'm willing to pay: my margin of safety

2026-07-07 · By Lubin Danilo, founder of Lubin Investment

The margin of safety is the gap between the price I'm willing to pay for a stock and its estimated real value, a deliberate cushion to absorb my own estimation errors. It's not a technical detail: it's what determines whether I buy a stock today, or wait.

Key takeaways

The margin of safety is the gap between the price I'm willing to pay for a stock and its estimated real value.
It protects against my own estimation errors: no one calculates a company's value with perfect precision.
At STERIS, my reasonable buy price even exceeds the current share price, a comfortable margin of safety.
At Cintas, the current share price far exceeds my reasonable buy price: no margin of safety, despite undeniable quality.

Why I never pay the price that feels fair

Estimating a company's real value always relies on assumptions about the future (growth, margins, discount rate) that can turn out wrong, even with the best possible analysis. The margin of safety concept, popularized by Benjamin Graham, means only buying with a large enough gap between the price paid and the estimated value, to absorb some of my own judgment errors without losing money.

How I calculate my reasonable buy price

For every stock in my screener, I calculate a reasonable buy price from conservative assumptions about the company's future free cash flow, discounted at a rate that already builds in a caution margin. That price isn't the company's 'fair' value: it's already a price that includes a deliberate discount from my central estimate, so I don't pay the benefit of the doubt to the company.

The STERIS case: a comfortable margin of safety

I analyzed STERIS on my site: my reasonable buy price for this company even exceeds its current share price. That doesn't automatically mean the stock is a good deal, but that the market isn't demanding an excessive premium for its quality, unlike other cases where the price already bakes in every possible piece of good news.

The Cintas case: no margin of safety

Cintas, which I also analyzed, illustrates the opposite case: my reasonable buy price comes in at $118.84, versus a current share price of $181.83, a gap of more than 50%. Cintas's quality is beyond doubt, but at this price, there's no margin of safety: the slightest disappointment can send the stock down far more than it should, with no cushion to absorb bad news.

The margin of safety isn't a magic number

I don't set a universal discount percentage to demand before buying: the margin of safety needed depends on my confidence level in my own assumptions. A company with predictable operations and a solid balance sheet justifies a smaller margin of safety than a cyclical company or one whose future hinges heavily on a single uncertain factor.

What I take away from this

The margin of safety is what turns good analysis into a disciplined buying decision. An excellent company without a margin of safety remains, for now, a stock to watch rather than to buy. This principle, more than any other, is what keeps me from confusing 'good company' with 'good time to buy.'

FAQ

What is the margin of safety?

The gap between the price I'm willing to pay for a stock and its estimated real value, a deliberate cushion to absorb my own estimation errors.

Who popularized the margin of safety concept?

Benjamin Graham, whose principle is to only buy with a large enough gap between the price paid and a company's estimated value.

Does STERIS offer a margin of safety?

Yes, my reasonable buy price for STERIS even exceeds its current share price, a comfortable margin of safety.

Why doesn't Cintas offer any margin of safety?

Its current price ($181.83) far exceeds my reasonable buy price ($118.84), a gap of more than 50% that leaves no room for error.

Should the margin of safety be the same for every stock?

No, it depends on confidence in the assumptions: a predictable company justifies a smaller margin than a cyclical or uncertain one.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).