Mental Models · Card 2

Margin of Safety

Never pay right up to the edge of what you think something is worth — leave room for being wrong.

1,000

What I think it's worth

750

What I'm actually paying

The ₹250 gap is room for being wrong.

In Practice

If you estimate a company is worth ₹1,000 a share, buying at ₹750 leaves room for your estimate to be wrong and still come out fine.

Generic Example

Packing a day's buffer before an important meeting leaves room for a delayed flight without ruining anything.

If I'm wrong about this by 20%, do I still come out okay?