Fair value, intrinsic value & margin of safety, explained
Three words that get used interchangeably and shouldn't be. Get them straight and most valuation confusion disappears.
6 min read · Updated 2026-07-08 · By Caverian
Price is not value
Price is what the market is asking today; value is what the business is actually worth to an owner. They're related — price wanders around value over time — but on any given day they can be far apart, and that gap is where returns come from.
Intrinsic value
Intrinsic value is the present value of all the cash a business will hand its owners over its life, discounted back to today. It's a concept you estimate, never a figure you measure exactly, because it depends on the future. That's not a weakness — it's the whole game. Two careful investors can reach different intrinsic values from the same facts and both be reasonable.
Fair value estimate
A fair-value estimate is your best, sourced approximation of intrinsic value — ideally a range from several methods rather than a single point. Caverian's consensus is exactly that: the median of the fair-value models that apply to the company, each built from real, dated inputs.
Margin of safety
Because your estimate can be wrong, you don't buy at fair value — you buy below it. The discount is your margin of safety: the cushion that lets a mistake in your assumptions cost you little rather than a lot.
How big a margin? Larger when the business is hard to predict, the models disagree, or the data is thin; smaller for a stable, well-covered company you understand. The point is to make the size of the buffer a deliberate decision, not an afterthought.
Key takeaways
- Price is the ask; value is what the business is worth to an owner.
- Intrinsic value is estimated, never measured — that's normal.
- A fair-value estimate should be a sourced range, not a point.
- Buy below fair value; the discount is your margin of safety.
- Size the margin to the uncertainty, deliberately.
Frequently asked questions
What's the difference between fair value and intrinsic value?
Intrinsic value is the theoretical worth of a business based on its future cash flows. A fair-value estimate is your practical, sourced approximation of that worth — usually a range produced by several models rather than a single exact figure.
How large should a margin of safety be?
It depends on how uncertain the estimate is. A stable, predictable business you understand well justifies a smaller discount; a volatile or hard-to-value one, or thin data, calls for a larger buffer. The key is to choose it deliberately.
See a fair-value estimate
Related guides
Sources: Yahoo Finance, Financial Modeling Prep, SEC EDGAR.