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  • A List Of Classic Value Stocks Part I: Net-Nets [View article]
    Thank you for your reply, Ruerd Heeg.

    Graham wasn't against buying the cheaper net-nets.
    He just recommended avoiding the loss making ones, a very logical suggestion.

    There's no point buying a stock for its current assets (cash equivalents), if the company's losing money.

    As for Graham's performance, anything can be proven in retrospect.

    But as Warren Buffett says:
    "Only when the tide goes out do you discover who's been swimming naked."

    Graham comes with very solid references, as mentioned in the previous comment.

    Many new and simpler methods are attributed to Graham's later interviews. But following his printed material seems most prudent.
    Apr 15, 2015. 03:57 PM | Likes Like |Link to Comment
  • Textainer Group Holdings: A 6% Yielder That's Relatively Cheap, Too [View article]
    Thank you for the link to Serenity's article on Graham!

    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 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 Textainer Group Holdings Ltd (TGH), 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%.

    Textainer Group Holdings Ltd - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 111.40%
    Current Assets ÷ [2 x Current Liabilities]: 79.58%
    Net Current Assets ÷ Long Term Debt: 5.08%
    Earnings Stability (100% ⇒ 10 Years): 60.00%
    Dividend Record (100% ⇒ 20 Years): 40.00%
    Earnings Growth (100% ⇒ 30% Growth): 189.68%
    Graham Number ÷ Previous Close: 130.00%

    Stocks failing Graham's rules are not 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 15, 2015. 03:21 PM | 2 Likes Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Hello Ján Mazák,

    Thank you for your comment!

    Given below is the reply to your comment, as well as a summary of the replies given to Jae Jun and James Allen, Sr:

    1. Graham dedicates two entire, clearly-named chapters of The Intelligent Investor to stock selection. The 17 rules in these chapters are designed to ensure both a qualitative and quantitative Margin of Safety. No assumptions are required.

    2. On the other hand, this formula is only mentioned briefly in an unrelated chapter, with two clear warnings.

    The first is a footnote that says that this formula does not really provide any true value.

    Also, Graham's actual methods always use figures from the past, including checks for past growth rate. Past figures are objective and require no assumptions. Predictions of the future are subjective. This formula uncharacteristically requires a predicted "expected growth rate" - a subjective number - to arrive at an intrinsic value.

    Graham actually uses this formula to calculate the "expected growth rate" from the current price, as can be seen in the scans above. The second warning - clearly labelled as such - then says that the formula is only intended as an illustration and such projections are never reliable.

    The stock selection chapters have no such warnings.

    3. Recent editions of The Intelligent Investor have had the footnote moved to an obscure location, at the end of the book.

    4. The full warning is only given a couple of pages later, and is easy to miss. This probably was the reason Graham included the footnote in the first place.

    5. Graham's true methods always include checks for assets. This formula has no such checks. Services and other asset-light companies are nothing new. In Graham's real framework, low assets can be offset by high earnings and vice versa. Graham designed a well balanced framework that could assess all types of companies.

    So while it's true that nothing is black and white - and an intrinsic value is an estimate at best - one also needs to be able to avoid mistakes and make sound decisions, based on facts. It's easy to get lost in a world of grays.

    George Soros' theory of reflexivity states that our view of the world is inherently flawed. But those who have a marginally clearer view of reality tend to make slightly better decisions and over time, the slightly better decisions can snowball into significant differences in gains.

    It always helps to remember Buffett's "Keep It Simple" principle.

    The facts are all laid out in plain view.
    What we choose to believe is up to each one of us.
    Apr 15, 2015. 09:10 AM | Likes Like |Link to Comment
  • These Markets Are Making Everyone Look Brilliant... Except Value Investors [View article]
    Benjamin Graham advised keeping a minimum of 25% of one's portfolio in stocks (the rest being in bonds) even in the highest of markets.

    The reasoning was that any market, no matter how high, could always go higher and one should never be completely divested.
    Apr 14, 2015. 05:34 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Raytheon 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 Raytheon Co (RTN), 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%.

    Raytheon Co - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 4,565.20%
    Current Assets ÷ [2 x Current Liabilities]: 86.78%
    Net Current Assets ÷ Long Term Debt: 81.84%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 70.00%
    Earnings Growth (100% ⇒ 30% Growth): 135.54%
    Graham Number ÷ Previous Close: 61.12%

    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 14, 2015. 05:24 PM | Likes Like |Link to Comment
  • A List Of Classic Value Stocks Part I: Net-Nets [View article]
    The Net Current Asset Value (or NCAV/Net-Net) 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 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.

    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 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 Actions Semiconductor Co Ltd (ACTS), 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%.

    Actions Semiconductor Co Ltd - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 10.06%
    Current Assets ÷ [2 x Current Liabilities]: 156.61%
    Net Current Assets ÷ Long Term Debt: 100.00%
    Earnings Stability (100% ⇒ 10 Years): 0.00%
    Dividend Record (100% ⇒ 20 Years): 0.00%
    Earnings Growth (100% ⇒ 30% Growth): 0.00%
    Graham Number ÷ Previous Close: 0.00%

    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 14, 2015. 05:23 PM | 2 Likes Like |Link to Comment
  • When I (Almost) Dumped Ben Graham's Intelligent Investor [View article]
    Very nice summary of Graham's investment philosophy!

    Graham does provide some very specific instructions for stock selection in The Intelligent Investor as well.

    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.
    Apr 14, 2015. 05:16 PM | Likes Like |Link to Comment
  • 3 Things: Value Of Cash, Valuations, Red Flags [View article]
    Incidentally, the CAPE ratio is based on the writings of Benjamin Graham in his legendary 1934 book “Security Analysis.”

    Please note that Graham advised keeping a minimum of 25% of one's portfolio in stocks (the rest being in bonds) even in the highest of markets.
    The reasoning was that any market, no matter how high, could always go higher and one should never be completely divested.

    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.

    Thank you.
    Apr 10, 2015. 06:08 PM | Likes Like |Link to Comment
  • Third Avenue Funds' Quarterly Report Review: Educational And Idea-Generating [View article]
    True words, John Alford.
    After all, to stray from Graham's rules is to stray from the Margin of Safety.

    Thank you for your reply!
    Apr 10, 2015. 06:05 PM | Likes Like |Link to Comment
  • 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
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