Seeking Alpha

Serenity

 
View as an RSS Feed
View Serenity's Comments BY TICKER:
Latest  |  Highest rated
  • Graham's Stock Selection Criteria Revisited [View article]
    A very informative and sensible article!
    It's rare to see Graham's methods applied correctly these days.

    You're also right in that many analysts now wrongly substitute Market Cap for Sales when checking for company size using Graham's methods.
    Checking for Market Capitalization instead of Sales will - all other things being equal - rate overvalued stocks higher than undervalued ones.

    You could also have checked how the stocks stack up against Graham's criteria for Enterprising and NCAV investment.
    For example, given below are all Graham ratings for 3M Company (MMM).

    Defensive Graham investment requires all the ratings to be at least 100%.
    Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    3M Company - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 6,174.00%
    Current Assets ÷ [2 x Current Liabilities]: 84.91%
    Net Current Assets ÷ Long Term Debt: 121.01%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 113.75%
    Graham Number ÷ Previous Close: 38.57%

    The Final Graham Assessment for 3M Company is also given below.
    The Quantitative Result (Intrinsic Value ÷ Previous Close) for a stock has to be 100% for true Graham investment.

    3M Company - Final Graham Assessment
    Defensive Price (Graham Number): $61.94
    Enterprising Price (Serenity Number): $35.60
    NCAV Price: $-5.00
    Qualitative Result: Good / Enterprising
    Intrinsic Value: $35.60
    Previous Close: $160.60
    Quantitative Result: 22.17%

    You can see a similar 17-point Benjamin Graham assessment for 5000+ NYSE and NASDAQ stocks - including all 30 DJIA stocks above - on Serenity.

    Thank you.
    Dec 18, 2014. 12:24 PM | Likes Like |Link to Comment
  • The Dividend Growth Investing Challenge [View article]
    NCAV stocks are the most well-known of Benjamin Graham's strategies, and the source of the general misconception that Graham only recommended cheap stocks.

    But Graham actually recommended Index, Defensive and Enterprising stocks before NCAV stocks and all were allowed higher Quantitative valuations and required greater Qualitative checks.

    For example, given below are all Graham ratings for Regal-Beloit Corporation (RBC).

    Defensive Graham investment requires all the ratings to be at least 100%.
    Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Regal-Beloit Corporation - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 620.00%
    Current Assets ÷ [2 x Current Liabilities]: 123.12%
    Net Current Assets ÷ Long Term Debt: 168.31%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 124.79%
    Graham Number ÷ Previous Close: 86.24%

    The Final Graham Assessment for Regal-Beloit Corporation is also given below.
    The Quantitative Result (Intrinsic Value ÷ Previous Close) for a stock has to be 100% for true Graham investment.

    Regal-Beloit Corporation - Final Graham Assessment
    Defensive Price (Graham Number): $61.61
    Enterprising Price (Serenity Number): $22.08
    NCAV Price: $3.07
    Qualitative Result: Excellent / Defensive
    Intrinsic Value: $61.61
    Previous Close: $71.44
    Quantitative Result: 86.24%

    Graham emphasized that the secret of sound investment was the "Margin of Safety". He recommended various categories of stocks - Defensive, Enterprising and NCAV - and specified precise qualitative and quantitative rules for each category.

    Graham did advocate paying more for Quality (Stability and Growth). His key prerequisite was that there be the Margin of Safety between price and value, whether the value be qualitative or quantitative.
    Dec 18, 2014. 10:43 AM | Likes Like |Link to Comment
  • LeapFrog Enterprises: A Very Cheap Stock [View article]
    Benjamin Graham actually emphasized that the secret of sound investment was the "Margin of Safety". He recommended various categories of stocks - Defensive, Enterprising and NCAV - and specified precise qualitative and quantitative rules for each category.

    For example, given below are all Graham ratings for LeapFrog Enterprises Inc (LF).

    Defensive Graham investment requires all the ratings to be at least 100%.
    Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    LeapFrog Enterprises Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 110.72%
    Current Assets ÷ [2 x Current Liabilities]: 249.23%
    Net Current Assets ÷ Long Term Debt: 100.00%
    Earnings Stability (100% ⇒ 10 Years): 40.00%
    Dividend Record (100% ⇒ 20 Years): 0.00%
    Earnings Growth (100% ⇒ 30% Growth): 476.19%
    Graham Number ÷ Previous Close: 232.81%

    The Final Graham Assessment for LeapFrog Enterprises Inc is also given below.
    The Quantitative Result (Intrinsic Value ÷ Previous Close) for a stock has to be 100% for true Graham investment.

    LeapFrog Enterprises Inc - Final Graham Assessment
    Defensive Price (Graham Number): $10.83
    Enterprising Price (Serenity Number): $8.65
    NCAV Price: $4.43
    Qualitative Result: Bargain / NCAV
    Intrinsic Value: $4.43
    Previous Close: $4.65
    Quantitative Result: 95.27%

    LeapFrog Enterprises Inc does sell very close to its NCAV value.
    Graham also required NCAV stocks to also have positive trailing EPS figures, which LeapFrog Enterprises Inc does have as well.
    Dec 18, 2014. 10:26 AM | Likes Like |Link to Comment
  • Investing For Beginners With Benjamin Graham [View article]
    Correct, jeff_horsch.
    According to Graham's framework.

    Again, that doesn't necessarily mean the stock is a bad a investment.
    Just that there probably are better investments out there.
    Dec 4, 2014. 06:41 AM | Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Colgate-Palmolive [View article]
    The ModernGraham website lists the following formula as one of the evaluation methods it uses:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

    Benjamin Graham actually gave several warnings about this formula and only used it to demonstrate why oversimplified growth estimates are unreliable. But due to a printing omission in recent editions of The Intelligent Investor, this formula is used often today instead of Graham's actual (and more thorough) methods.

    Article 1: http://seekingalpha.co... discusses the issue in detail.

    In fact, most of what Graham actually taught has been forgotten today or is applied incorrectly.

    Another example, from the above article, is:
    "Adequate Size of Enterprise - market capitalization of at least $2 billion."

    Graham actually recommended "Not less than $100 million of annual sales" for this criterion. Checking for Market Capitalization instead of Sales will - all other things being equal - rate overvalued stocks higher than undervalued ones. Other rules mentioned here too - such as dividend record, and PE & PB ratios - are all very different from what Graham actually recommended.

    Graham spent nearly 50 years developing, backtesting and refining an investment framework that has withstood the test of time, and has been endorsed by some of the world's most successful investors. Modifying Graham's rules so heavily seems very ill-advised.

    Given below are the actual Graham ratings for The Colgate-Palmolive Company (CL), with no modifications other than adjustments for inflation.

    Defensive Graham investment requires all the ratings to be at least 100%.
    Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    The Colgate-Palmolive Company - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 3,484.00%
    Current Assets ÷ [2 x Current Liabilities]: 53.94%
    Net Current Assets ÷ Long Term Debt: 7.41%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 156.40%
    Graham Number ÷ Previous Close: 14.28%

    Article 2: http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks, by a similar exact Benjamin Graham assessment.

    Thank you.
    Dec 2, 2014. 03:14 PM | Likes Like |Link to Comment
  • Charlie Munger, Warren Buffett And Benjamin Graham [View instapost]
    Hello again frrizzo380,

    Thank you for your informative comment!

    Munger himself reportedly said something very similar to what you've written in the first two lines of your comment, in a recent interview.

    Also, as just mentioned in the other article, the quote you mention was attributed to Buffett by Carol J. Loomis in a 1988 Fortune magazine article.
    Buffett may have said "Boy, if I had listened only to Ben, would I ever be a lot poorer.".

    But you have to remember that Buffett didn't get rich just by investing. He made most of his money from business; convincing others to let him manage their money. Buffett may simply have been referring to Munger - a lawyer from Harvard - helping significantly with that.

    But as far as his investing acumen goes, Buffett has credited Graham repeatedly and unequivocally.

    Buffett also tends to be surrounded by folklore, and Graham, by misconceptions.
    In general, it pays to focus more on what they wrote themselves, than on what is written about them.

    Serenity faithfully follows the methods Graham recommended in his books.
    But if you look closely, almost all the world's great investors simply state a similar philosophy in different words.

    Grahams says "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto - Margin of Safety.".
    Seth Klarman says “Loss avoidance must be the cornerstone of your investment philosophy.”
    Munger himself says “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

    The Graham school of thought seems to be the best documented, and highest recommended.
    But as long as you follow one of the schools diligently, you should be fine.

    Thank you!
    Dec 1, 2014. 04:09 PM | Likes Like |Link to Comment
  • Investing For Beginners With Benjamin Graham [View article]
    Hello frrizzo380,

    You could be right.
    But do consider these facts as well.

    Irving Kahn and Walter Schloss never worked with Munger.
    But they too were students of Graham (Kahn named his son after Graham too, just as Buffett did).

    The quote you mention was attributed to Buffett by Carol J. Loomis in a 1988 Fortune magazine article. Buffett may have said that.

    But what Buffett definitely did write himself is a lengthy article in 1984 describing how Benjamin Graham's principles are everlasting, and how the only common factor across the world's most successful investors is Graham. The article is called "The Superinvestors of Graham-and-Doddsville".

    Buffett describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" in its preface.
    The article, the preface, and Buffett's eulogy to Graham are all available in any copy of the Intelligent Investor even today.

    George Soros once said "Good investing is boring". The reverse is true as well.
    Convoluted techniques of analysis sound impressive and sell copy, even if they don't actually work.

    Buffett tends to be surrounded by folklore, and Graham, by misconceptions.
    In general, it pays to focus more on what they wrote themselves, than on what is written about them.

    You already seem to have found the instablog post about this topic at http://seekingalpha.co...
    That post has a more detailed discussion. You will receive a more detailed reply to your comment there as well.

    Thank you for your comments!
    Dec 1, 2014. 03:23 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Baxter International [View article]
    Glad to be of help, awayk.
    If you have any questions, please don't hesitate to ask.

    Thank you!
    Dec 1, 2014. 01:56 PM | Likes Like |Link to Comment
  • Charlie Munger, Warren Buffett And Benjamin Graham [View instapost]
    Thank you for your comment, tyouth!

    You could be right. But Graham also prescribed very different strategies for highly experienced, well-connected and institutional investors.

    For details, please see the section on "Special Situations" in http://seekingalpha.co...

    Also given below is part of the conclusion from the study "The Evolution of the Idea of Value Investing: From Benjamin Graham to Warren Buffett" by Robert F. Bierig, Duke University:

    "A [casual] observer of Buffett today would find it difficult to see the Ben Graham influence in many of his activities. However, that influence remains at the core of Buffett's investment model. Buffett continues to think about stocks as fractional ownership interests in underlying businesses, he continues to operate under the assumption that there is a distinction between price and value, and he continues to search for the largest discrepancy between those two items. In other words, he continues to be a value investor."
    Dec 1, 2014. 07:56 AM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Baxter International [View article]
    The ModernGraham website lists the following formula as one of the evaluation methods it uses:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

    Benjamin Graham actually gave several warnings about this formula and only used it to demonstrate why oversimplified growth estimates are unreliable. But due to a printing omission in recent editions of The Intelligent Investor, this formula is used often today instead of Graham's actual (and more thorough) methods.

    Article 1: http://seekingalpha.co... discusses the issue in detail.

    Most of what Graham actually taught has been forgotten today, or is applied incorrectly.

    Another example, from the above article, is:
    "Adequate Size of Enterprise - market capitalization of at least $2 billion."

    Graham actually recommended "Not less than $100 million of annual sales" for this criterion. Checking for Market Capitalization instead of Sales will - all other things being equal - rate overvalued stocks higher than undervalued ones. Other rules mentioned here too - such as dividend record, and PE & PB ratios - are all very different from what Graham actually recommended.

    Graham spent nearly 50 years developing, backtesting and refining an investment framework that has withstood the test of time, and has been endorsed by some of the world's most successful investors. Modifying Graham's rules so heavily seems very ill-advised.

    Given below are the actual Graham ratings for Baxter International Inc (BAX), with no modifications other than adjustments for inflation.

    Defensive Graham investment requires all the ratings to be at least 100%.
    Enterprising Graham investment requires the ratings to be at least - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Baxter International Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 3,052.00%
    Current Assets ÷ [2 x Current Liabilities]: 84.69%
    Net Current Assets ÷ Long Term Debt: 50.41%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 211.31%
    Graham Number ÷ Previous Close: 51.38%

    Article 2: http://seekingalpha.co... shows how one can screen 5000+ NYSE and NASDAQ stocks, by a similar exact Benjamin Graham assessment.
    Nov 30, 2014. 03:28 PM | 2 Likes Like |Link to Comment
  • Investing For Beginners With Benjamin Graham [View article]
    Also, please note that many websites and analysts claim that Graham recommended calculating Intrinsic Value with the following formula.

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

    Graham actually gave several warnings about this formula and only used it to demonstrate why oversimplified growth estimates are unreliable.

    But due to a printing omission in recent editions of The Intelligent Investor, this formula is used often today instead of Graham's actual (and more thorough) methods.

    http://seekingalpha.co... discusses the issue in detail.
    Nov 30, 2014. 10:25 AM | Likes Like |Link to Comment
  • Investing For Beginners With Benjamin Graham [View article]
    Hello jeff_horsch,

    Thank you for posting your question here!

    The Qualitative Result tells us that this stock is suitable only for Enterprising investors. It's not of high enough quality for Defensive investors.

    Since this is an Enterprising quality stock, the Intrinsic Value of this stock equals its Enterprising Price.
    Similarly, the Intrinsic Value for a Defensive quality stock equals its Defensive Price (Graham Number), and the Intrinsic Value for an NCAV quality stock equals its NCAV Price.

    According to Graham, a stock is undervalued below its Intrinsic Value and overvalued above its Intrinsic Value.

    Please note that this does not imply that all stocks not clearing Graham's rules are bad investments. Graham's rules are just extremely selective. It's more a question of how to get the "best" long-term results.

    If you have more questions, please don't hesitate to ask.

    Thank you!
    Nov 30, 2014. 10:08 AM | Likes Like |Link to Comment
  • Investing For Beginners With Benjamin Graham [View article]
    Good luck, MacKay Dave!

    If you have more questions, please don't hesitate to ask.
    Nov 27, 2014. 01:34 PM | Likes Like |Link to Comment
  • Common Misconceptions About Benjamin Graham [View instapost]
    Hello again MacKay Dave,

    Graham does not specifically mention how he uses bond yields to calculate optimum stock prices. So it's hard to say how current yields would affect Graham's metrics. Serenity does not analyze bonds.

    Serenity calculates Graham prices exactly as Graham describes in the stock selection chapters of The Intelligent Investor: a maximum PE of 15 for Defensive quality stocks, 10 for Enterprising quality stocks and so on.

    Depending on whether the market is high or low, you will see fewer or a greater number of stocks clearing Graham's rules today.

    Regardless of where the market is, you will ensure a greater margin of safety in your investments by staying within the Graham rules.

    Hope that answers your question.
    Thank you!
    Nov 27, 2014. 11:14 AM | Likes Like |Link to Comment
  • General Mills, Inc. Dividend Stock Analysis [View article]
    Absolutely, User 367640.

    But it's that second question that started the discussion - are Graham's calculations relevant now?

    Buffett ended "The Superinvestors of Graham-and-Doddsville" writing:
    "Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper."

    But the argument being made is that - because Buffett was worth only $620 million when he wrote that article in 1984 - Munger is to be credited instead of Graham for Buffett's investment acumen.
    Nov 27, 2014. 09:17 AM | Likes Like |Link to Comment
COMMENTS STATS
486 Comments
230 Likes