> ## Documentation Index > Fetch the complete documentation index at: https://docs.chicago.global/llms.txt > Use this file to discover all available pages before exploring further. # Margin of Safety > Understanding margin of safety - the cushion between what you pay and what the evidence supports, sized to how much could go wrong Margin of safety is the gap between the value an analysis supports and the price actually paid. It exists because analysis is imperfect and the future is uncertain. ## Beginner ### What It Means If you believe a business is worth 100 and you pay 70, you have a 30 cushion. That cushion absorbs the errors in your own analysis, the bad luck nobody forecast, and the ordinary changes that make a company worth less than expected. ### Example Two investors both buy at 70 a company they value at 100. One is a stable utility with predictable regulated cash flow. The other is a pre-profit platform whose value depends entirely on results five years out. The same 30 cushion means very different things. ### Why It Matters A margin of safety provides room for outcomes below the central estimate. The useful size of that cushion depends on uncertainty in the business, its financing and the valuation assumptions. *** ## Advanced ### How to Read It `Margin of safety = independently supported value − price paid` The required cushion is not a fixed percentage. It scales with the specific fragilities of the case: * **Duration**: the further value sits in the future, the more sensitive it is to the discount rate and to competitive fade. * **Leverage**: debt converts an operating disappointment into an equity loss. * **Accounting uncertainty**: aggressive capitalization or unclear consolidation widens the error bar on the starting point. * **Financing dependence**: a business that must raise capital to reach breakeven carries dilution risk that a self-funding one does not. ### Common Misreadings * **Applying one fixed discount to everything**: a 30% rule treats a regulated utility and a cash-burning platform as equivalent risks. * **Confusing a wide valuation range with a margin of safety**: the range describes uncertainty. The cushion is what you get by paying less than the supported value. * **Manufacturing the cushion through the discount rate**: raising WACC to create apparent conservatism hides an operating view inside a financing input. * **Treating a price fall as a growing margin of safety**: it only grows if the supported value has not fallen too. ### In Parallax Reports Parallax builds Bear, Base and Bull cases that reflect different operating assumptions, and names the falsifiers for each. The spread between them is what tells a reader how much cushion this particular case requires. See [Scenario Design and Falsification](/methodology/valuation/scenarios). ### Related Terms What the price already assumes Measuring a decline from peak value Return measured against risk taken