Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School. Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In the preface to Graham's book, "The Intelligent Investor," Buffett calls it "by far the best book about investing ever written."

Graham taught that the returns an investor was to expect were not proportional to the risk he was willing to assume but rather to the effort he was willing to put into the selection and maintenance of his stock portfolio. He recommended 3 different grades of stocks based on increasing returns - Defensive, Enterprising and NCAV (Net Current Asset Value) stocks. The Comprehensive Graham Screener checks 4700 NYSE and NASDAQ stocks to find stocks meeting

Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.

Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him.

In the preface to Graham's book, The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."

Graham's Enterprising Grade Criteria:

Previously, in How To Build A Complete Benjamin Graham Portfolio, we have seen how to build portfolios of various grades of stocks recommended by Graham. Then earlier this week, we saw 10 Stocks Meeting Benjamin Graham's Defensive Criteria In 2013.

Graham recommended Enterprising grade stocks for investors

Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.

Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him.

In the preface to Graham's book, The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."

Graham's Defensive Grade Criteria:

Previously, in How To Build A Complete Benjamin Graham Portfolio, we had seen how to build portfolios of various grades of stocks recommended by Graham.

The highest grade of stocks recommended by Graham are called Defensive stocks. The criteria that Graham specified for identifying Defensive stocks are as

Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.

Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him.

In the preface to Graham's book, The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."

Greater Effort, Greater Returns

Contrary to common thinking that greater profits require greater risks, Graham said that if he had to distill the secret of sound investment into three words, they would be "Margin of Safety." The chapter on "Margin of Safety" in Graham's book is also the one most highly recommended

Benjamin Graham was an economist and professional investor, who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.

Buffett describes Graham as the second most influential person in his life after his own father and even named his son after Graham. In the preface to Graham's book The Intelligent Investor, Buffett calls it "by far the best book about investing ever written." Graham recommended three different grades of stocks for investment, with 16 specific calculations for identifying them. Today, we will do a complete Graham analysis for LinkedIn (NYSE:LNKD) and see what grade and price Graham would have recommended for it.

LinkedIn is a social networking website mainly used for professional networking. As of June 2012, LinkedIn reports more than 175 million registered users in more than 200 countries and territories. LinkedIn is also unique in that, of the 4000 NYSE and NASDAQ

Benjamin Graham was an economist and professional investor who taught Warren Buffett, Irving Kahn, Walter J. Schloss and other famous investors at Columbia Business School.

Buffett, who credits Graham with grounding him with a sound intellectual investment framework, describes Graham as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons after him. In the preface to Graham's book The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."

Graham recommended three different grades of stocks for investment, with specific calculations for identifying them. Today, we will do a complete Graham analysis on Facebook (FB) and see what grade and price Graham would have recommended for it.

1. A Defensive Analysis:

The first grade of stocks recommended by Graham are called Defensive

Benjamin Graham was a British-born American economist and professional investor, who taught Warren Buffett and other world famous investors at Columbia Business School.

Buffett credits Graham with grounding him with a sound intellectual investment framework, and describes him as the second most influential person in his life, after his own father.

In fact, Graham had such an overwhelming influence on his students that two of them, Warren Buffett and Irving Kahn, named their sons, Howard Graham Buffett and Thomas Graham Kahn, after him.

In his preface to Graham's book The Intelligent Investor, Buffett calls it "by far the best book about investing ever written."

Graham's Defensive Grade Criteria:

In our previous article, we discussed how Graham actually recommended three different grades of stocks, and how the now-popular Graham Number actually covers only two of the seven criteria required by the first grade.

This highest grade of

One of the most commonly used stock selection formulas these days is the Graham Number, which Graham actually did recommend (unlike the completely misunderstood Benjamin Graham Formula).

But again, there is a very large difference between how this calculation was recommended, and how it is being used today.

The Derivation:

The number itself is simple enough, and can be derived from criteria [6] and [7] from Graham's calculations for defensive stocks.

Summarized from CHAPTER 14 of The Intelligent Investor - Stock Selection for the defensive Investor:

1. Not less than $100 million of annual sales.

[Serenity note: This comes to $500 million today based on the difference in CPI/Inflation from 1973]

2. (A) Current assets should be at least twice current liabilities.

2. (B) Long-term debt should not exceed the net current assets.

3. Some earnings for the common stock in each of the past ten years.

There is a surprisingly common misconception that Graham recommended evaluating stocks with the equation:

V = EPS x (8.5 + 2g), or
Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)

An online search for "Benjamin Graham formula" will bring up dozens of Stock Screeners and Analyst Reports recommending stocks based on this formula.

(Note: Serenity too uses this formula, but to calculate the market's expected growth rate from the stock price, as Graham intended, and not the other way around.)

What Graham Actually Wrote:

Graham was completely against any kind of Charting/Technical Analysis/Forecasting. He always analyzed stocks based on past performance and wrote entire chapters on stock selection. This formula is not mentioned anywhere in them.

He only mentions this formula to show how unrealistic the market's growth expectations are, when seen retrospectively.

A few paragraphs after mentioning this formula, he writes:

Warning: