Margin of safety

The gap between what a business is worth and what you pay for it. Buying at ₹700 something estimated to be worth ₹1,000 gives a 30% margin.

The concept is Benjamin Graham's, and it exists because the valuation is an estimate produced by a fallible person using assumptions that will be wrong. The margin is protection against that error, not against market movement.

The size of the margin should scale with how uncertain the estimate is. A stable consumer business with twenty years of steady returns needs less than a cyclical commodity producer whose earnings power depends on a price nobody can forecast.

A large margin on a business you have misjudged is not protection.