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  • LeapFrog Is Selling Below Its Liquidation Value [View article]
    Please note that Net Current Asset Value (or 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.

    Graham also required true NCAV stocks to have positive current earnings.
    True NCAV stocks would necessarily be selling far below their liquidation value, or Tangible Book Value Per Share (TBVPS).
    (Additionally, the investopedia definition for a net net stock is NCAV and not NNWC)

    Given below are the actual Graham ratings for LeapFrog Enterprises Inc (LF), with no adjustments other than those 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%.

    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: 424.54%

    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: $2.55
    Quantitative Result: 100.00%

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by a similar exact Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 25, 2015. 08:42 AM | Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Xerox Corporation [View article]
    The ModernGraham website lists the following formula as the Graham method 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-based valuations 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 inaccurately.

    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 very different from what Graham actually recommended.

    Given below are the actual Graham ratings for Xerox Corporation (XRX), with no adjustments other than those 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%.

    Xerox Corporation - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 4,288.00%
    Current Assets ÷ [2 x Current Liabilities]: 74.84%
    Net Current Assets ÷ Long Term Debt: 40.92%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 35.00%
    Earnings Growth (100% ⇒ 30% Growth): 72.68%
    Graham Number ÷ Previous Close: 106.29%

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

    Article 2: http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by a similar exact Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 25, 2015. 08:24 AM | Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Thank you for your comment, Jae Jun.

    This debate has become quite academic. The Graham references cited in the Serenity's articles are all publicly available. Interested readers are encouraged to look them up and decide on the facts for themselves.

    Thank you.
    Jan 25, 2015. 06:55 AM | Likes Like |Link to Comment
  • 225 Value Stocks Ready For Review [View article]
    Thank you for bringing that up, Jae Jun.

    Net-Net is just a more recent term for what Graham referred to as Net Current Asset Value (or NCAV) stocks. Unlike the Benjamin Graham formula, NCAV is a real Graham recommended strategy and the full 17-point Benjamin Graham analysis includes an NCAV calculation (see first comment above).

    Disparaging remarks notwithstanding, this debate on Graham's methods is quite academic. The Graham references cited in the articles mentioned are all publicly available. Interested readers are encouraged to look them up and decide on the facts for themselves.

    Thank you.
    Jan 25, 2015. 06:40 AM | Likes Like |Link to Comment
  • 225 Value Stocks Ready For Review [View article]
    Dear pim69,

    You know what they say about opinions.
    Why depend on what anybody else says?

    There are two articles linked to in the previous comment.

    The first article cites the pages (with scans) where Graham warns against this growth formula.

    The second article cites the chapters where Graham elaborates on his actual methods for stock selection.

    Why not just get a copy of The Intelligent Investor and verify the references for yourself?

    The book also has the preface by Warren Buffett, as well as Buffett's article "The Superinvestors of Graham-and-Doddsville" given as an appendix. Both make for great reading!

    Thank you.
    Jan 22, 2015. 01:59 PM | 1 Like Like |Link to Comment
  • 225 Value Stocks Ready For Review [View article]
    The link in the above article cites the following as the "Graham formula" 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.

    Graham spent nearly 50 years developing, backtesting and refining his investment framework; a framework that has withstood the test of time and has been endorsed by some of the world's most successful investors.

    For example, given below are the actual Graham ratings for Snap-on Incorporated (SNA), with no adjustments other than those 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%.

    Snap-on Incorporated - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 612.00%
    Current Assets ÷ [2 x Current Liabilities]: 125.54%
    Net Current Assets ÷ Long Term Debt: 125.84%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 263.97%
    Graham Number ÷ Previous Close: 50.73%

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

    Snap-on Incorporated - Final Graham Assessment
    Defensive Price (Graham Number): $67.25
    Enterprising Price (Serenity Number): $37.10
    NCAV Price: $-3.45
    Qualitative Result: Excellent / Defensive
    Intrinsic Value: $67.25
    Previous Close: $132.56
    Quantitative Result: 50.73%

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

    Article 2: http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by a similar 17-point Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 21, 2015. 11:09 AM | 1 Like Like |Link to Comment
  • Neosho Capital On QQE2: Japan's Monetary Banzai Charge [View article]
    "Not only must Benjamin Graham's enterprising investor understand individual stocks, but they must also be keenly cognizant of the role the world's largest central banks actively play in the value of currencies, bonds, stocks, ETFs, mutual funds, and derivatives of all kinds."

    Is there a Benjamin Graham reference to support this statement?
    Graham actually wrote quite a lot about tuning out the noise in finance, and simplifying the investment process.

    Graham's most famous student - Warren Buffett - once said:
    "Stop trying to predict the direction of the stock market, the economy, interest rates, or elections."

    Buffett also said:
    "There seems to be some perverse human characteristic that likes to make easy things difficult."

    Graham spent nearly 50 years developing, backtesting and refining his investment framework; a framework that has withstood the test of time and has been endorsed by some of the world's most successful investors.

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact 17-point Benjamin Graham assessment, with no changes other than adjustments for inflation.
    Jan 17, 2015. 12:54 PM | Likes Like |Link to Comment
  • Naive Graham: Passive Investing According To The Master [View instapost]
    Absolutely, varan.

    As already noted in the previous comment, the weights do indeed work well with Graham's rules.

    On the whole, this appears to be a very good strategy for those who wish to stay within Graham's rules for minimum-effort defensive investment; as well as the recommendations for equity-debt diversification.

    Graham did recommend keeping investment activity to a minimum too though. So the question of rebalancing rules and period is an interesting one; especially since the implications of a well performing stock (price correction) can be different from that of a well performing fund (superior management). It probably does make sense to allocate more funds to a better forming fund.

    Nice work!
    Jan 16, 2015. 12:10 PM | Likes Like |Link to Comment
  • Naive Graham: Passive Investing According To The Master [View instapost]
    This a very interesting strategy, varan.
    Graham may well have recommended it himself if he had access to ETFs.

    Quoted from Chapter 14 of The Intelligent Investor - Stock Selection for the Defensive Investor:
    "In setting up this diversified list he has a choice of two approaches, the DJIA-type of portfolio and the quantitatively- tested portfolio. In the first he acquires a true cross-section sample of the leading issues....[shortened]... This could be done, most simply perhaps, by buying the same amounts of all thirty of the issues in the Dow-Jones Industrial Average."

    However, two questions do come to mind:

    1. Why allocate more to the higher performing fund(s)? Doesn't that goes against Graham's general principle of buying low? Why invest more in something that may already be overpriced? Of course, better performing funds may be better managed. But if past ranking indicates future performance, why not simply stick to the best performing fund of each category?

    2. In the 6 fund approach, what if the top 3 are not all stock ETFs, or not all bond ETFs? This may not be a serious issue though as that would probably go well with Graham's recommendation of staying between 25% and 75%.

    Your insights on these questions would be valuable.

    Thank you!
    Jan 14, 2015. 02:49 PM | Likes Like |Link to Comment
  • Kellogg Company Dividend Stock Analysis [View article]
    Please note that before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria.

    For example, given below are all Graham ratings for Kellogg Company (K).

    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%.

    Kellogg Company - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,958.00%
    Current Assets ÷ [2 x Current Liabilities]: 42.59%
    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): 123.56%
    Graham Number ÷ Previous Close: 43.96%

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

    Graham spent nearly 50 years developing, backtesting and refining his investment framework; a framework that has withstood the test of time and has been endorsed by some of the world's most successful investors.

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 13, 2015. 03:57 PM | Likes Like |Link to Comment
  • Be A Value Investor Without Doing The Work: The Magic Formula [View article]
    Please note that NCAV stocks, or Net-Net 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.

    Graham did advocate paying more for Quality.
    His only prerequisite was that there be the Margin of Safety between price and value, whether the value be Qualitative or Quantitative.

    For example, given below are all Graham ratings for Ebix Inc (EBIX).

    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%.

    Ebix Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 40.94%
    Current Assets ÷ [2 x Current Liabilities]: 76.69%
    Net Current Assets ÷ Long Term Debt: 156.14%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 15.00%
    Earnings Growth (100% ⇒ 30% Growth): 879.37%
    Graham Number ÷ Previous Close: 96.53%

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

    Ebix Inc - Final Graham Assessment
    Defensive Price (Graham Number): $20.45
    Enterprising Price (Serenity Number): $5.96
    NCAV Price: $-1.01
    Qualitative Result: Good / Enterprising
    Intrinsic Value: $5.96
    Previous Close: $21.19
    Quantitative Result: 28.13%

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

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact 17-point Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 13, 2015. 03:52 PM | Likes Like |Link to Comment
  • The Main Reason Why Indexers Will Likely Beat Active Stock Pickers [View article]
    Hello Dale Roberts,

    Do note that while Benjamin Graham did advocate buying stocks for long term investment and for dividends - rather than for speculation - he did not advocate holding on to stocks forever.

    In fact, Graham gave very specific instructions for both buying and selling stocks.

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact 17-point Benjamin Graham assessment, and includes his recommendations on selling stocks.

    Graham also often emphasized that most mutual funds did not beat the market average, as measured by the indices. He thus recommended that the first strategy for any investor -- one that required nearly no effort -- was to proportionally invest in stocks listed in the indices. This is something that can be done a lot more easily today, by simply investing in an index fund.

    Quoted from Chapter 14 of The Intelligent Investor - Stock Selection for the Defensive Investor:
    "In setting up this diversified list he has a choice of two approaches, the DJIA-type of portfolio and the quantitatively- tested portfolio. In the first he acquires a true cross-section sample of the leading issues....[shortened]... This could be done, most simply perhaps, by buying the same amounts of all thirty of the issues in the Dow-Jones Industrial Average."

    Thus it should be safe to say that Graham's first recommended strategy today would be to invest in a reputed index fund following a popular index like the DIJA or the S&P 500.
    Jan 13, 2015. 03:40 PM | Likes Like |Link to Comment
  • Johnson & Johnson Dividend Stock Analysis [View article]
    Please note that before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria.

    For example, given below are all Graham ratings for Johnson & Johnson (JNJ).

    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%.

    Johnson & Johnson - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 14,262.00%
    Current Assets ÷ [2 x Current Liabilities]: 109.85%
    Net Current Assets ÷ Long Term Debt: 230.58%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 96.48%
    Graham Number ÷ Previous Close: 48.94%

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

    Johnson & Johnson - Final Graham Assessment
    Defensive Price (Graham Number): $50.55
    Enterprising Price (Serenity Number): $22.77
    NCAV Price: $-0.79
    Qualitative Result: Good / Enterprising
    Intrinsic Value: $22.77
    Previous Close: $103.28
    Quantitative Result: 22.05%

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

    Graham spent nearly 50 years developing, backtesting and refining his investment framework; a framework that has withstood the test of time and has been endorsed by some of the world's most successful investors.

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 7, 2015. 03:25 PM | 1 Like Like |Link to Comment
  • Checking In With Mr. Market [View article]
    Nice article!

    Do note that while Graham did give the extremely useful analogy of Mr. Market, the more entertaining - but still accurate - "manic depressive" explanation was actually given by Buffett.

    As for IQ, Buffett himself writes in the preface to The Intelligent Investor:
    "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."

    And a little later, about Graham:
    "His counsel of soundness brought unfailing rewards to his followers—even to those with natural abilities inferior to more gifted practitioners who stumbled while following counsels of brilliance or fashion."
    Jan 6, 2015. 05:12 PM | Likes Like |Link to Comment
  • PepsiCo, Inc. Had An Excellent Run In 2014 [View article]
    Please note that before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria.

    For example, given below are all Graham ratings for Pepsico Inc (PEP).

    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%.

    Pepsico Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 13,284.00%
    Current Assets ÷ [2 x Current Liabilities]: 62.23%
    Net Current Assets ÷ Long Term Debt: 17.93%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 116.99%
    Graham Number ÷ Previous Close: 39.92%

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

    Graham spent nearly 50 years developing, backtesting and refining his investment framework; a framework that has withstood the test of time and has been endorsed by some of the world's most successful investors.

    http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by an exact Benjamin Graham assessment, with no adjustments other than those for inflation.
    Jan 6, 2015. 04:58 PM | Likes Like |Link to Comment
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