Seeking Alpha
View as an RSS Feed

Serenity  

View Serenity's Comments BY TICKER:
Latest  |  Highest rated
  • Best Russell 1000 Basic Materials Stocks According To Buffett Principles: A Look At Westlake Chemical [View article]
    Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Warren Buffett once wrote a detailed article explaining how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham's principles are everlasting. 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).

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial algorithmic analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.

    For example, given below are the actual Graham ratings for Westlake Chemical Corp (WLK), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Westlake Chemical Corp - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 846.20%
    Current Assets ÷ [2 x Current Liabilities]: 203.58%
    Net Current Assets ÷ Long Term Debt: 162.83%
    Earnings Stability (100% ⇒ 10 Years): 50.00%
    Dividend Record (100% ⇒ 20 Years): 55.00%
    Earnings Growth (100% ⇒ 30% Growth): 166.40%
    Graham Number ÷ Previous Close: 46.89%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 10, 2015. 05:57 PM | 1 Like Like |Link to Comment
  • Third Avenue Funds' Quarterly Report Review: Educational And Idea-Generating [View article]
    Benjamin Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial algorithmic analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.

    For example, given below are the actual Graham ratings for Loews Corp (L), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Loews Corp - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,865.00%
    Current Assets ÷ [2 x Current Liabilities]: 0.00%
    Net Current Assets ÷ Long Term Debt: 0.00%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 38.34%
    Graham Number ÷ Previous Close: 7.05%

    Warren Buffett once wrote a detailed article explaining how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham's principles are everlasting. 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).

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 10, 2015. 05:52 PM | Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of CarMax Inc. [View article]
    The ModernGraham website cites the following formula as one of the Graham methods applied:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

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

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

    Another ModernGraham rule mentioned in 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 rule. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    For example, given below are the actual Graham ratings for CarMax Inc (KMX), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    CarMax Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,837.80%
    Current Assets ÷ [2 x Current Liabilities]: 151.03%
    Net Current Assets ÷ Long Term Debt: 24.09%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 0.00%
    Earnings Growth (100% ⇒ 30% Growth): 221.43%
    Graham Number ÷ Previous Close: 34.81%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 10, 2015. 05:47 PM | Likes Like |Link to Comment
  • 7 Core Investment Strategies To Lower Risk And Increase Returns [View article]
    The first two valuation methods mentioned on that link on the oldschoolvalue website are NCAV and the Benjamin Graham Formula.

    1. Net Current Asset Value (or NCAV/Net-Net)

    The NCAV valuation method was developed and recommended by Benjamin Graham. But Graham also recommended that an NCAV stock have a positive EPS figure to be eligible for investment.

    The positive EPS requirement is also logical, if you think about it. There's really not much point buying a stock solely for its current assets (cash equivalents), if the company's losing money.

    But as mentioned earlier, most Graham analyses today only follow the quantitative part of Graham's recommendations (NCAV, Graham Number etc) without the supporting qualitative criteria; leading to value traps and the misconception that Graham only recommended inexpensive stocks.

    2. Benjamin Graham Formula

    This is a variation of the below equation:

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

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

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

    Benjamin Graham was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Warren Buffett describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in its preface).

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for identifying them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.
    Apr 7, 2015. 11:21 AM | 1 Like Like |Link to Comment
  • ModernGraham Quarterly Valuation Of W.W. Grainger Inc. [View article]
    The ModernGraham website cites the following formula as one of the Graham methods applied:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

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

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

    Another ModernGraham rule mentioned in 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 rule. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    For example, given below are the actual Graham ratings for W.W. Grainger, Inc. (GWW), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    W.W. Grainger, Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 1,993.00%
    Current Assets ÷ [2 x Current Liabilities]: 116.78%
    Net Current Assets ÷ Long Term Debt: 421.48%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 188.18%
    Graham Number ÷ Previous Close: 47.11%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 6, 2015. 05:10 PM | 1 Like Like |Link to Comment
  • Part II: Nelson's Notes On Berkshire Hathaway's 2014 Newsletter [View article]
    Warren Buffett once wrote a detailed article explaining how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham's principles are everlasting. The article is called "The Superinvestors of Graham-and-Doddsville".

    Buffett concluded the article 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."

    For both retail and institutional investors, true investing is all about exploiting discrepancies between price and intrinsic value.

    Given below are a few more related Buffett quotes:
    "Stop trying to predict the direction of the stock market, the economy, interest rates, or elections."
    "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell."
    "the reason a lot of studies are made of these price and volume variables is that now, in the age of computers, there are almost endless data available about them. It isn’t necessarily because such studies have any utility"

    Benjamin Graham - also known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Buffett describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in its preface).

    But most Graham analyses today only follow the quantitative part of Graham's recommendations (NCAV, Graham Number etc) without the supporting qualitative criteria, often leading to what are referred to as value traps. Such problems are not the result of following Graham, but rather the result of applying Graham's methods incorrectly.

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for identifying them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    Thank you.
    Apr 4, 2015. 04:53 PM | 4 Likes Like |Link to Comment
  • When It Comes To Stocks, Trust Fundamentals - Not Forecasts [View article]
    Talking about trusting numbers, Benjamin Graham himself wrote:
    "Operations for profit should be based not on optimism but on arithmetic."

    Benjamin Graham - also known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Warren Buffett once wrote a detailed article explaining how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham's principles are everlasting. 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).

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for identifying them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    For example, given below are the actual Graham ratings for Chart Industries Inc (GTLS), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Chart Industries Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 234.20%
    Current Assets ÷ [2 x Current Liabilities]: 65.03%
    Net Current Assets ÷ Long Term Debt: 230.77%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 0.00%
    Earnings Growth (100% ⇒ 30% Growth): 69.69%
    Graham Number ÷ Previous Close: 97.02%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 2, 2015. 05:44 PM | 2 Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of PVH Corporation [View article]
    The ModernGraham website cites the following formula as one of the Graham methods applied:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

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

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

    Another ModernGraham rule mentioned in 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 rule. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    For example, given below are the actual Graham ratings for PVH Corp (PVH), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    PVH Corp - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 1,645.00%
    Current Assets ÷ [2 x Current Liabilities]: 96.62%
    Net Current Assets ÷ Long Term Debt: 37.31%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 154.99%
    Graham Number ÷ Previous Close: 64.54%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also just extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Apr 2, 2015. 05:38 PM | Likes Like |Link to Comment
  • 7 Core Investment Strategies To Lower Risk And Increase Returns [View article]
    > 5. Bet heavily when the odds are overwhelmingly in your favor

    This seems ill-advised.

    If a stock is heavily underpriced, even a regular investment would result in more units acquired.
    This is the principle on which diversification (and dollar cost averaging) works.

    Even for Defensive quality stocks - his safest category of stocks - Benjamin Graham did not recommend having less than 10 stocks in one's portfolio, no matter how undervalued a stock may appear.

    Betting heavily on a single promising stock goes against Graham's very definition of sound investment:

    "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
    The Intelligent Investor, Benjamin Graham

    Graham has also always been very clear on the counterproductive nature of risk in investment.

    "there has developed the general notion that the rate of return which the investor should aim for is more or less proportionate to the degree of risk he is ready to run. Our view is different. The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task."
    The Intelligent Investor, Benjamin Graham

    "to distill the secret of sound investment into three words, we venture the motto - Margin of Safety."
    The Intelligent Investor, Benjamin Graham

    While the popular interpretation of the Margin of Safety is to buy stocks with low P/E and P/B ratios, a true Graham Margin of Safety is both qualitative and quantitative.

    But most Graham analyses today only follow the quantitative part of Graham's recommendations (NCAV, Graham Number etc) without the supporting qualitative criteria, often leading to what are referred to as value traps.

    Then there are those who recommend stocks with formulas Graham actually intended as warnings... but we digress.

    > 7. Look for low risk, high uncertainty businesses

    Bit of an oxymoron there (no offense).
    Did you mean low risk, high volatility?

    > Had you bought great businesses such as

    "In the business world, the rearview mirror is always clearer than the windshield."
    -Warren Buffett
    Apr 2, 2015. 05:25 PM | 2 Likes Like |Link to Comment
  • From Growth To Dividend, Why Warren Buffett's Primary Reason For Investing In Coke Is Slowly Fading [View article]
    The questions raised by GaryBuck about the validity of Greenwald's "Graham to Buffett" formula notwithstanding, here is an analysis for Coca-Cola (KO) based on an investment framework that Warren Buffett himself recommended.

    Benjamin Graham - also known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Buffett describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in its preface).

    Buffett also writes in the preface:
    "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline."

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    Given below are the actual Graham ratings for Coca-Cola, with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Coca-Cola Co - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 9,199.60%
    Current Assets ÷ [2 x Current Liabilities]: 50.95%
    Net Current Assets ÷ Long Term Debt: 3.21%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 95.00%
    Earnings Growth (100% ⇒ 30% Growth): 125.79%
    Graham Number ÷ Previous Close: 41.93%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also just extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Benjamin Graham is sometimes called the father of value investing. But the term "Value" is often misunderstood to refer to only quantity, and not quality. Most of Graham's actual stock selection rules were concerned with the qualitative assessment of a stock (including objective checks for growth).

    Warren Buffett once wrote a detailed article explaining how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham's principles are everlasting. The article is called "The Superinvestors of Graham-and-Doddsville".

    Buffett concluded 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."

    Thank you.
    Mar 31, 2015. 04:42 PM | Likes Like |Link to Comment
  • A Very Insightful Comment [View instapost]
    Thank you for the extremely informative comments!

    As mentioned in Serenity's reply to that user, Serenity's default Graham analyses and Serenity's Classic Graham Screener will continue to use 15 and 22.5 for the Graham analysis.

    But Serenity's Advanced Graham Screener can be used to screen Graham stocks meeting these adjusted figures.

    For example, adjusting the Graham Number from a PE of 15 to a PE of 37 involves the following:

    37÷15 = 2.467 (PE adjustment factor)
    √2.467 = 1.57 (Graham Number adjustment factor)

    We would need to multiply the Graham Number of a stock by 1.57 to adjust it to a maximum PE of 37.

    Filter values required for screening Defensive Graham stocks meeting the adjusted figure on Serenity's Advanced Graham Screener:

    Sales | Size (100% ⇒ $500 Million): 100%
    Current Assets ÷ [2 x Current Liabilities]: 100%
    Net Current Assets ÷ Long Term Debt: 100%
    Earnings Stability (100% ⇒ 10 Years): 100%
    Dividend Record (100% ⇒ 20 Years): 100%
    Earnings Growth (100% ⇒ 30% Growth): 100%
    Graham Number ÷ Previous Close: 64%

    64% is used for the last filter (GN÷PC) because the reciprocal of 1.57 (the Graham Number adjustment factor) is 0.6367, or 63.67%.

    Thanks again.
    Mar 31, 2015. 11:21 AM | Likes Like |Link to Comment
  • Finding the Best Value Investing Stock Screener  [View instapost]
    Benjamin Graham - also known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Buffett describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in its preface).

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    Serenity's screeners thus focus on Defensive, Enterprising and NCAV stocks. These can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    Serenity provides two web-based screeners:
    1. A free Classic Graham screener that lets you screen 5000+ NYSE and NASDAQ stocks by a strict 17-point Benjamin Graham Value Investing assessment.
    2. An Advanced Graham screener (more customizable) that lets you screen the same 5000+ stocks by customized combinations of the Graham Number and Graham's 15 other Value Investing rules.

    Thank you.
    Mar 30, 2015. 04:04 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Illinois Tool Works Inc. [View article]
    The ModernGraham website cites the following formula as one of the Graham methods applied:

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

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

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

    Another ModernGraham rule mentioned in 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 rule. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Graham's first recommended strategy - for casual investors - was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 rules for finding them.
    For advanced investors, Graham described various "special situations".

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of experience, intuition and talent. Such stocks are not amenable to impartial quantitative analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for detailed objective analysis and profitable investment.

    For example, given below are the actual Graham ratings for Illinois Tool Works Inc (ITW), with no adjustments other than those for inflation.

    Defensive Graham investment requires that all ratings be 100% or more.
    Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%.

    Illinois Tool Works Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,896.80%
    Current Assets ÷ [2 x Current Liabilities]: 114.29%
    Net Current Assets ÷ Long Term Debt: 75.96%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 95.00%
    Earnings Growth (100% ⇒ 30% Growth): 146.20%
    Graham Number ÷ Previous Close: 49.03%

    Not all stocks failing Graham's rules are necessarily bad investments. Graham's rules are just extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety.

    Thank you.
    Mar 30, 2015. 03:20 PM | Likes Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    > could have

    Hence the saying "the rearview mirror is always clearer", tikigod18.

    Such perfect timing is a lot trickier than it appears in hindsight.

    One would need to divest well in advance of the coming crash, and to stay divested all through the ensuing decline to the exact point when the late Mark Haines tells Erin Burnett, "I think we're at a bottom. I really do.".

    Graham gives a set of principles that, while not as perfect in outcome, are a lot more plausible in implementation.
    Mar 28, 2015. 03:31 PM | Likes Like |Link to Comment
  • Go Ugly Early When It Comes To Benjamin Graham's Stocks Trading Below Net Current Asset Value [View article]
    Excellent point, frrizzo380!
    Mar 28, 2015. 03:04 PM | 1 Like Like |Link to Comment
COMMENTS STATS
652 Comments
350 Likes