Benjamin Graham and David Dodd, founders of value investing, coined the term margin of safety in their seminal 1934 book, Security Analysis.
Benjamin Graham suggested to look at unpopular or neglected companies with low P/E and P/B ratios.
The margin of safety protects the investor from both poor decisions and downturns in the market.
Because fair value is difficult to accurately compute, the margin of safety gives the investor room for investing.
Warren Buffett famously analogized margin of safety to driving across a bridge:You have to have the knowledge to enable you to make a very general estimate about the value of the underlying business.