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  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Hello Jae Jun,

    As mentioned, Graham gives a footnote as well as a warning that such growth projections are unreliable. Even a stock with absolutely no tangible assets can clear this formula just by having a high "expected" growth rate.

    On the other hand, two entire chapters of The Intelligent Investor are dedicated to methods that Graham actually recommends for investors:

    1. Chapter 14: Stock Selection for the Defensive Investor, and
    2. Chapter 15: Stock Selection for the Enterprising Investor

    The sixteen criteria mentioned in those chapters are designed to verify all aspects of a stock before investment. http://seekingalpha.co... lists all sixteen criteria, and gives step-by-step instructions on how to find stocks that meet them.

    Thank you for your comment.
    May 26 01:02 AM | Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Thank you for that very informative comment, ArtfulDodger!

    NCAV stocks are Graham's most popular investment model, and possibly the reason for the common belief that he only recommended cheap stocks. But Graham actually recommended Defensive and Enterprising stocks before NCAV stocks and both were allowed higher quantitative evaluations 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.

    In fact, the last of the Graham strategies mentioned in http://seekingalpha.co... is "Special Situations", which is precisely the type of investment you speak of. But he did not recommend it for the ordinary investor as it supposedly required a high degree of skill, experience and resources. As Buffett said, Graham was more focussed on developing an investment model with which the ordinary investor - with his ordinary resources - could use to get results similar to his own.

    But Buffett being Buffett has the skill, experience and resources; and yes, almost all his investments do fall in Graham's "Special Situations" category.

    Thank you again for a very informative comment!
    May 23 09:52 PM | Likes Like |Link to Comment
  • Joel Greenblatt Is A Modern-Day Benjamin Graham [View article]
    Thank you, Nat Hunt.
    May 23 05:18 AM | Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Hello Jim Allen,

    As mentioned, Graham gives a footnote as well as a warning that such growth projections are unreliable. Even a stock with absolutely no tangible assets can clear this formula just by having a high "expected" growth rate.

    On the other hand, two entire chapters of The Intelligent Investor are dedicated to methods that Graham actually recommends for investors:

    1. Chapter 14: Stock Selection for the Defensive Investor, and
    2. Chapter 15: Stock Selection for the Enterprising Investor

    The sixteen criteria mentioned in those chapters are designed to verify all aspects of a stock before investment. http://seekingalpha.co... lists all sixteen criteria, and gives step-by-step instructions on how to find stocks that meet them.

    Thank you for your comment.
    May 23 04:17 AM | Likes Like |Link to Comment
  • Joel Greenblatt Is A Modern-Day Benjamin Graham [View article]
    Thanks for the interesting article!
    For the most part, Greenblatt's principles mentioned here seem almost exactly the same as Graham's.

    Just a quick note though: it's unlikely that Benjamin Graham would have claimed to have a formulaic way to beat the market. The below excerpt is from Graham's seminal book, The Intelligent Investor.

    "All of these judgments could be defended even today by adroit arguments. But it is doubtful if they have been as useful as our more pedestrian counsels—in favor of a consistent and controlled common-stock policy on the one hand, and discouraging endeavors to “beat the market” or to “pick the winners” on the other."
    - Benjamin Graham, The Intelligent Investor

    The Intelligent Investor has numerous such instances where Graham discourages readers from attempting to beat the market. Buffett himself said "Beware of geeks bearing formulas" in his 2008 Annual letter to shareholders.

    Benjamin Graham actually recommended three different grades of stocks for investment - Defensive, Enterprising and NCAV - and sixteen criteria for recognizing them.

    http://seekingalpha.co... lists all sixteen of the criteria Graham recommended in The Intelligent Investor, and gives step-by-step instructions on how to find stocks that meet them.
    May 20 04:40 PM | Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    That's a very nice analogy, Jim Allen!

    When done for the purpose of investment, buying real estate is really no different from buying stocks. The old misconception that real estate prices only go up will find fewer takers after the crash of 2008. In fact, stocks have quite a few advantages over real estate - better liquidity, more historical performance data, better overall performance, and more formally documented approaches to analysis.

    You're right in that the general idea is to ensure you're not paying too much (keeping a "Margin of Safety") and there are multiple ways to calculate the value of a stock.

    The purpose of the article was only to point out that - if you're following Graham's approaches to investing - Graham had very specifically warned against using this formula, or any other such growth stock valuation.

    The other major arguments against this formula - other than the fact that Graham warned against it - are that

    1. It uses subjective future estimates rather than objective past figures
    2. It makes no allowance for a Margin of Safety in terms of Assets; only Earnings.
    May 20 04:25 AM | Likes Like |Link to Comment
  • How To Invest In A Deep Value Investment Opportunity In 3 Easy Steps: Load Caza Oil & Gas, Sit, And Wait [View article]
    Thank you for the detailed analysis!

    Benjamin Graham was the founder of Value Investing, as mentioned in the article, as well as Warren Buffett's mentor (Buffett's son is named after Graham).

    So while there are multiple ways to calculate the value of a stock, it is important to note that this article does not use the methods suggested by the said founder of Value Investing, and CAZFF does not meet any of the Graham's investment criteria.

    Benjamin Graham recommended three different grades of stocks for investment - Defensive, Enterprising and NCAV - and sixteen criteria for finding them.

    For Defensive investment, Benjamin Graham required that the stock first have uninterrupted earnings for the previous 10 years, uninterrupted dividends for the previous 20 years, and meet 4 other criteria.

    Given below are the Defensive ratings for CAZFF:

    Sales: 1.66%
    Assets / Liabilities: 72.35%
    Assets / Debt: 21.19%
    Earnings Stability: 0.00%
    Dividend Record: 0.00%
    Earnings Growth: 0.00%
    Graham Number / Price: 0.00%

    Defensive stocks require all the above to be above 100%.
    CAZFF does not meet the criteria for Enterprising or NCAV investment either.
    Details and data used: http://bit.ly/1qPZ6Gm

    This does not mean that the article is wrong. The stock could still be a great buy and perform as expected. The analysis just does not apply Value Investing as taught by its founder.

    It should also be noted that some stocks that pass the Graham criteria may do badly and some that don't pass them may do very well. But the most successful investors are usually those who ride out stock markets safely for decades, and they almost always tend to be those who follow Graham (a peculiar phenomenon that is elaborated more on in Buffett's 1984 article "The Superinvestors of Graham-and-Doddsville" which can be found online).
    May 19 04:05 PM | Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Thank you, Jim Allen!

    The purpose of the article was not to evaluate the formula itself, but to simply point out that Graham had very specifically warned against using this formula, or any other such growth stock valuation.

    Over time, Graham did move away from the in-depth methods detailed in "Security Analysis" to the more large-scale methods in "The Intelligent Investor".

    But all the methods actually recommended by Graham have at least one requirement for Earnings, and one for Assets; at a minimum.

    http://seekingalpha.co... lists all sixteen of the criteria Benjamin Graham recommended in The Intelligent Investor, and gives step-by-step instructions on how to build a stock portfolio that meets them.
    May 16 05:07 PM | Likes Like |Link to Comment
  • How To Invest In A Deep Value Investment Opportunity In 3 Easy Steps: Load Caza Oil & Gas, Sit, And Wait [View article]
    It seems to be quite common to refer to Value Investing and Benjamin Graham in an analysis these days, without actually using any of the principles or criteria that Graham actually recommended.

    Benjamin Graham recommended three different grades of stocks for investment - Defensive, Enterprising and NCAV - and sixteen criteria for finding them.

    http://seekingalpha.co... lists all sixteen of the criteria Graham recommended in The Intelligent Investor, and gives step-by-step instructions on how to find stocks that meet them.

    http://seekingalpha.co... describes the kind of oversimplified analysis commonly attributed to Graham, and how Graham specifically warned against such shortcuts.
    May 15 04:21 PM | 3 Likes Like |Link to Comment
  • 3 Stocks With Great PEG Ratios - Investment Ideas [View article]
    Benjamin Graham strongly advised against investing based on any predicted or future numbers, so a forward PEG is out of the question. Past numbers are objective, future numbers are not.

    If you are referring to a trailing PEG, Graham only recommended the following in The Intelligent Investor:
    1. For Defensive investors, "A minimum increase of at least one-third in per-share earnings in the past 10 years."
    2. For Enterprising investors, "Last year's earnings more than those of [five years ago]."

    Could you specify where Graham actually referred to a PEG ratio, and if the reference was to a forward PEG or a trailing PEG?

    http://seekingalpha.co... lists all sixteen of the criteria Benjamin Graham recommended in The Intelligent Investor, and gives step-by-step instructions on how to build a stock portfolio that meets all of them.
    May 13 03:16 PM | Likes Like |Link to Comment
  • International Business Machines Corp. Dividend Stock Analysis [View article]
    As the author mentions, IBM has a negative Tangible Book Value. [-$12.68]

    So the result of a complete Benjamin Graham analysis for IBM is:

    Defensive Price (Graham Number): $0.00
    Enterprising Price (Serenity Number): $0.00
    NCAV Price: -$45.57
    Qualitative Result: OK / NCAV
    Graham Price: $0.00
    Previous Close: $193.14
    Quantitative Result: 0.00%

    To be checked against the Graham Number, Benjamin Graham required that a stock first have uninterrupted earnings for the previous 10 years, uninterrupted dividends for the previous 20 years, and meet 4 other Defensive criteria. He also specified separate sets of criteria for Enterprising and NCAV stocks.

    Given below are the Defensive ratings for IBM:
    [a rating of 100% or more indicates that the stock clears that criteria]

    Sales: 20,902.00%
    Assets / Liabilities: 56.66%
    Assets / Debt: 24.11%
    Earnings Stability: 100.00%
    Dividend Record: 100.00%
    Earnings Growth: 214.74%
    Graham Number / Price: 0.00%

    Long-term success in investment depends less on finding outperforming stocks, and more on consistently avoiding unsafe stocks. Graham himself said "Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY."

    http://seekingalpha.co... gives step-by-step instructions on how to build a complete stock portfolio that meets Benjamin Graham's recommended Margin of Safety today.
    Apr 29 04:19 PM | Likes Like |Link to Comment
  • Backtesting A Value Strategy [View article]
    Nice work highlighting an oft-neglected Graham technique that is both simple and effective!

    However, NCAV stocks were the last class of stocks recommended by Graham - after Defensive and Enterprising stocks - and also required the most diversification, because NCAV calculations are also the most prone to accounting manipulation. Additionally, Graham required NCAV stocks to have no losses in the last 12 months.

    Graham refined and backtested his methods for almost 50 years before recommending them, and Warren Buffett has spoken for years about their timeless effectiveness. If one were to look hard enough (using technology to do the hard work), there are still quite a few Defensive and Enterprising stocks to be found today, apart from the good number of NCAV stocks.

    http://seekingalpha.co... gives step-by-step instructions on how to build a authentic Benjamin Graham portfolio today.
    Apr 21 01:38 AM | 1 Like Like |Link to Comment
  • Graham Value Stock Portfolio Update: April 2014 [View article]
    The criteria used here seem to be a mix of Benjamin Graham's Defensive and Enterprising stock selection criteria. Graham refined and backtested those criteria for almost 50 years before recommending them. Is it really a good idea to modify them so extensively? Investing is a fine art. Small mistakes can have large repercussions.

    http://seekingalpha.co... gives step-by-step instructions on how to build a authentic Benjamin Graham portfolio today.
    Apr 20 05:29 AM | Likes Like |Link to Comment
  • Groupon Valuation Estimates Using Graham Formula [View article]
    Sorry, but Graham did not recommend this formula.
    This is a common misunderstanding.

    In fact, he used this formula to show why such overly simplistic methods are unreliable.

    For details, please see the seekingalpha article - http://seekingalpha.co...
    Mar 26 07:08 AM | Likes Like |Link to Comment
  • AT&T Inc. Dividend Stock Analysis [View article]
    Even though AT&T (T) has a Reported Book Value of $17.41, it has a (negative) Tangible Book Value of -$6.48.

    So the result of a complete Benjamin Graham analysis for AT&T is:

    Defensive Price (Graham Number): $0.00
    Enterprising Price (Serenity Number): $0.00
    NCAV Price: -$28.17
    Qualitative Result: OK / NCAV
    Graham Price: -$28.17
    Previous Close: $32.38
    Quantitative Result: 0.00%

    Also, to be checked against the Graham Number, Benjamin Graham required that a stock first have uninterrupted earnings for the previous 10 years, uninterrupted dividends for the previous 20 years, and meet 4 other Defensive criteria. In addition to the Defensive criteria, Graham also specified separate sets of criteria for Enterprising and NCAV stocks.

    Given below are the Defensive ratings for AT&T:
    [a rating of 100% or more indicates that the stock clears that criteria]

    Sales: 25,486.00%
    Assets / Liabilities: 35.72%
    Assets / Debt: 0.00%
    Earnings Stability: 100.00%
    Dividend Record: 100.00%
    Earnings Growth: 79.93%
    Graham Number / Price: 0.00%

    http://seekingalpha.co... gives step-by-step instructions on how to build a complete Benjamin Graham portfolio.
    Mar 13 03:00 PM | Likes Like |Link to Comment
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