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  • Stress Test For Dividend Growth Investors [View article]
    Warren Buffett once said:
    "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market."

    His mentor, Benjamin Graham, wrote:
    "Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies."

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

    Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them.

    For example, given below are the actual Graham ratings for General Electric Co (GE), 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%.

    General Electric Co - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 29,720.00%
    Current Assets ÷ [2 x Current Liabilities]: 55.32%
    Net Current Assets ÷ Long Term Debt: 100.00%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 54.68%
    Graham Number ÷ Previous Close: 72.25%

    Note: Stocks failing Graham's rules are not necessarily bad investments. They may fall under Graham's "special situations" category. Graham's rules are also extremely selective.

    If stocks are bought at reasonable valuations (with a good Margin of Safety) using a reliable framework such as Graham's, investors should have little to worry even from extreme market fluctuations.
    May 11, 2015. 03:52 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Buffett is simply outlining another application of Graham's Value Investing principles.

    Serenity's own 2+ year old article (http://seekingalpha.co...) recommends a Vanguard S&P500 index fund as a good application of Graham's first strategy for investors.
    May 10, 2015. 02:02 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    "those who read their Graham & Dodd will continue to prosper"

    Buffett is quite unequivocal about Value Investing.
    May 10, 2015. 09:11 AM | Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Olin 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 with this formula and only mentioned it briefly to demonstrate why the market's growth rate expectations are rarely justified. 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 of stock valuation.

    Article: Understanding The Benjamin Graham Formula Correctly (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.

    Given below are the actual Graham ratings for Olin Corp (OLN), 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%.

    Olin Corp - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 448.20%
    Current Assets ÷ [2 x Current Liabilities]: 107.94%
    Net Current Assets ÷ Long Term Debt: 66.46%
    Earnings Stability (100% ⇒ 10 Years): 70.00%
    Dividend Record (100% ⇒ 20 Years): 100.00%
    Earnings Growth (100% ⇒ 30% Growth): 106.67%
    Graham Number ÷ Previous Close: 77.89%

    Not all stocks failing Graham's rules are necessarily bad investments. They may fall under "special situations". Graham's rules are also extremely selective.

    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".

    Thank you.
    May 9, 2015. 04:36 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Your very first line in this discussion was:
    "The problem with the principle you quote"

    That was about the central principle of Value Investing - The Margin of Safety.

    You just wrote:
    "I have no objections to being a value investor"
    "Please show me where I have objections to it"

    And then, in the very same comment:
    "There are disadvantages to being a value investor for some people"
    May 9, 2015. 03:47 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Hello Mark_A,

    You make several objections to Value Investing.
    When they are addressed, you say "that is exactly what I said in my post".

    When it's pointed out that we are saying different things - because the objections you state are actually advantages for the Value Investor - you say "You don't have to keep repeating yourself".

    Then you make another new objection to Value Investing.

    Perhaps we should just close by saying that the issues you mention have already been addressed many times over by Graham and Buffett. If interested, please look up the two concepts mentioned in the previous comment.

    Thank you.
    May 9, 2015. 10:57 AM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    The idea is to ignore the market price and focus on the calculated value, Mark_A.

    The market's irrationality is the Value Investor's biggest advantage.
    Please look up "Mr Market" and "Voting machine vs Weighing machine".

    Thank you.
    May 8, 2015. 04:19 PM | Likes Like |Link to Comment
  • Why You Can't Invest Like Warren Buffett [View article]
    Absolutely!

    Benjamin Graham - also known as The Dean of Wall Street and The Father of Value Investing - 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 himself explained in the article that:
    "Size is the anchor of performance."

    It's far easier to do higher percentages with smaller investments.

    Most of Buffett's investments are what Benjamin Graham described as "special situations".

    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 ability and experience. Such stocks are also 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.
    May 7, 2015. 10:50 AM | 1 Like Like |Link to Comment
  • Why You Can't Invest Like Warren Buffett [View article]
    True!

    As Buffett himself said in "The Superinvestors of Graham-and-Doddsville":
    "Size is the anchor of performance."
    May 7, 2015. 10:46 AM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    We're splitting hairs, Ted Barac.

    But yes, that one quote shouldn't be taken literally.
    Especially since Buffett himself has given clearer quotes on the subject.

    The Margin of Safety and Sir John Templeton quotes remain quite straightforward.

    Risk is counterproductive to investment success, and those who don't learn from history are condemned to repeat it.
    May 6, 2015. 04:56 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    So if Buffett no longer follows Graham and will no longer pick stocks as well he used to, isn't that another endorsement for Graham's framework?

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

    "A [casual] observer of Buffett today would find it difficult to see the Ben Graham influence in many of his activities. However, that influence remains at the core of Buffett's investment model. Buffett continues to think about stocks as fractional ownership interests in underlying businesses, he continues to operate under the assumption that there is a distinction between price and value, and he continues to search for the largest discrepancy between those two items. In other words, he continues to be a value investor."
    May 6, 2015. 04:07 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Graham wrote:
    "There should be adequate though not excessive diversification."

    Buffett said:
    "Wide diversification is only required when investors do not understand what they are doing."

    Again, the same principle just stated differently.
    May 6, 2015. 02:40 PM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Mark_A,

    What the market thinks of a stock (price) rarely has anything to do with what the stock is actually worth (value).

    That is the essence of Value Investing.

    Note the Buffett quote in the reply to Ted Barac:
    "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."
    May 6, 2015. 09:28 AM | Likes Like |Link to Comment
  • 3 Dangerous And Misleading Quotes From Buffett And Templeton [View article]
    Warren Buffett once wrote a detailed article explaining how Benjamin 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:
    "There seems to be some perverse human characteristic that likes to make easy things difficult. The academic world, if anything, has actually backed away from the teaching of value investing over the last 30 years. It’s likely to continue that way. 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."
    May 6, 2015. 09:24 AM | Likes Like |Link to Comment
  • A List Of Classic Value Stocks Part II: Low P/Es With Strong Balance Sheets [View article]
    The "An hour with Benjamin Graham" interview is actually available for free online and can be found with Google.

    Scribd link (PDF/TXT):
    http://bit.ly/1bxFL6f

    Also, please note that while there is a reference to "sell at 50-100% gains or 2-3 years" in one of Graham's rumored interviews, the interview claims to be from an indirect source. The rule is not mentioned in any of Graham's printed material.

    Lastly, the NCAV (Net-Net) valuation method was indeed developed and recommended by Benjamin Graham. But Graham also recommended in The Intelligent Investor that an NCAV stock have a positive EPS figure to be eligible for investment.

    The positive EPS requirement is the qualitative check for NCAV stocks. There's really not much point buying a stock for its current assets (cash equivalents), if the company's losing money.

    Can you share the source of the "low PE companies with strong balance sheets" Graham strategy?

    In The Intelligent Investor, Graham specified three specific intrinsic value calculations - the Graham Number, the Enterprising price calculation and the NCAV - with supporting qualitative rules for each.

    The qualitative rules included checks - not just for balance sheet health - but also for a good earnings history and dividend history.

    The Graham Number and the Enterprising price calculation are combinations of both earnings and assets. NCAV is purely an asset based calculation.
    None of them is based purely on Earnings or P/E.

    Thank you.
    May 6, 2015. 08:28 AM | 1 Like Like |Link to Comment
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