Question
The difference between a stock's intrinsic value and its current market price is referred to as the margin of safety in investing. Intrinsic value is
The difference between a stock's intrinsic value and its current market price is referred to as the margin of safety in investing. Intrinsic value is the actual value of a company's asset, or the present value of an asset when all discounted future income is added together.
When it comes to investing, the margin of safety is calculated based on assumptions, which means that an investor would only buy securities if the market price is significantly lower than the estimated intrinsic value. Calculating a security's intrinsic value, or true worth, is highly subjective because each investor uses a different method for calculating intrinsic value, which may or may not be accurate. To use the discounted cash flow analysis method to arrive at an objective fair value for a business, the fair market price of the security must first be determined.
11
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