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  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    The evaluation of intangibles is, at best, a highly imperfect science.
    Here is what Graham himself wrote on the topic:

    "We were not willing to accept the prospects and promises of the future as compensation for a lack of sufficient value in hand. This has by no means been the standard viewpoint among investment authorities; in fact, the majority would probably subscribe to the view that prospects, quality of management, other intangibles, and “the human factor” far out- weigh the indications supplied by any study of the past record, the balance sheet, and all the other cold figures."
    - From "The Intelligent Investor"

    "A generation or more ago it was the standard rule, recognized both in average stock prices and in formal or legal valuations, that intangibles were to be appraised on a more conservative basis than tangibles. ... Essentially the exact reverse of these relationships may now be seen. A company must now typically earn about 10 per cent on its common equity to have it sell in the average market at full book value. But its excess earnings, above 10 per cent on capital, are usually valued more liberally, or at a higher multiplier, than the base earnings required to support the book value in the market. "
    - From "The Intelligent Investor"

    Thus, the best measure of a company's intangibles is its excess of earnings over that possible from its tangible assets alone. And this calculation of a stock's worth from the combination of its tangible assets and its total earnings is already fully accounted for in Graham's stock selection methods.
    Oct 8 11:53 PM | 1 Like Like |Link to Comment
  • Now Is The Time To Be Bullish (Part 2): The Domestic Stock Market Analysis [View article]
    Thank you, Morgan!
    Oct 4 01:26 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Be Bullish (Part 2): The Domestic Stock Market Analysis [View article]
    Hello Morgan,

    The Benjamin Graham formula is actually:
    Value = Current (Normal) Earnings X (8.5 "plus" twice the expected annual growth rate)

    And Graham actually strongly discouraged using it.
    For details, please see http://seekingalpha.co...
    Oct 3 10:46 PM | 1 Like Like |Link to Comment
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Thank you, Varan.
    The intent was not to prove anyone wrong anyway.

    But vague definitions are dangerous territory. Success, Failure, Profits, Losses and Bankruptcy are all terms that need not be precisely defined.
    Sep 24 01:59 AM | 1 Like Like |Link to Comment
  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    That's exactly what Graham recommends too, David.
    That one should start by first learning to keep up with the averages.

    Since he believed that returns were proportional, not to risk, but to the amount of intelligent effort the investor was willing to commit, he designed his strategies accordingly.

    The Index fund strategy required the least effort, followed by Defensive, Enterprising and then NCAV stocks. The final strategy was "Special Situations" which required the most effort and experience.
    Sep 15 03:47 PM | 1 Like Like |Link to Comment
  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    Thank you for your comment, David Crosetti!

    Three quarters of managed Mutual Funds do not manage to keep up with the market "average", as Graham pointed out. Hence the advent of Vanguard, Index funds etc.

    So if most "professional" money managers have trouble keeping up with the S&P500, an index fund is hardly a bad recommendation for the average investor, wouldn't you say?
    Sep 15 04:44 AM | 1 Like Like |Link to Comment
  • Invest In Stocks With A Margin Of Safety To Reduce Risk And Enhance Returns [View article]
    Hello Dan,

    You're right in that a low price alone is never a good enough reason to buy.

    Even for NCAV stocks - stocks selling under their net current asset value (effective cash value) - Graham still required that they at least have positive earnings in the last 12 month period before investing in them.
    Sep 14 03:07 AM | 1 Like Like |Link to Comment
  • 10 Stocks Meeting Benjamin Graham's NCAV Criteria In May [View article]
    Thank you, 31October!

    One of Graham's core principles is to never use estimates of any sort. Past numbers are objective and the same no matter who analyzes them. Estimates are subjective and can vary from source to source.

    So Graham's 16 criteria use far more basic values - like EPS, Book Value, Dividends, Assets, Liabilities etc - that are also harder to manipulate over extended periods of time.

    Graham's criteria are also backtested over a period of decades, some for even up to 50 years.
    Sep 7 07:45 AM | 1 Like Like |Link to Comment
  • 3 Stocks True Value Investors Will Love [View article]
    To be checked against the Graham Number, Benjamin Graham required that a stock have uninterrupted earnings for the previous 10 years, uninterrupted dividends for the previous 20 years, and meet 4 other Defensive criteria.

    Given below are the individual ratings for each of Graham's defensive criteria for the above three stocks (a rating above 100% indicates that the stock clears that criteria).

    Apollo Investment Corp (AINV):
    Sales: 19.72%
    Assets / Liabilities: 0.00%
    Assets / Debt: 0.00%
    Earnings Stability: 30.00%
    Dividend Record: 50.00%
    Earnings Growth: 74.40%
    Graham Number / Price: 154.26%

    Fortegra Financial Corp (FRF):
    Sales: 58.33%
    Assets / Liabilities: 0.00%
    Assets / Debt: 0.00%
    Earnings Stability: 60.00%
    Dividend Record: 0.00%
    Earnings Growth: 0.00%
    Graham Number / Price: 0.00% (Fortegra has a negative Tangible Book Value and hence a Graham Number of Zero)

    Lear Corp (LEA):
    Sales: 2,914.00%
    Assets / Liabilities: 75.75%
    Assets / Debt: 264.51%
    Earnings Stability: 30.00%
    Dividend Record: 15.00%
    Earnings Growth: 162.32%
    Graham Number / Price: 127.38%

    Serenity's screeners list all defensive ratings, as well as the results of a complete 16-step Graham analysis, for all 4700 NYSE and NASDAQ stocks.
    Aug 29 04:19 PM | 1 Like Like |Link to Comment
  • Ben Graham Did Not Give Up On Value Investing In Theory [View article]
    Excellent answers to both questions!

    One could add to the second answer that Graham's later book "The Intelligent Investor" marks a significant shift in strategy from Graham's earlier works such as "Security Analysis". Graham himself explained the change in paradigm as:

    “The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued-regardless of the industry and with very little attention to the individual company................. I found the results were very good for 50 years. They certainly did twice as well as the Dow Jones. And so my enthusiasm has been transferred from the selective to the group approach."
    Aug 14 04:29 PM | 1 Like Like |Link to Comment
  • 9 Dividend Stocks Providing A Growing Income [View article]
    Benjamin Graham was Warren Buffett's professor and mentor at Columbia Business School. Buffett calls Graham's book, The Intelligent Investor, "by far the best book about investing ever written."

    Graham recommended 3 different grades of stocks for investment - Defensive (safest), Enterprising and NCAV - and 16 criteria for finding them.

    Helmerich & Payne Inc (HP) is currently a fully defensive Graham stock.
    Defensive Price (Graham Number): $65.59
    Enterprising Price: $43.54
    NCAV Price: -$9.37
    Graham Grade: Excellent / Defensive
    Current Price: $62.55

    A percentage rating for each of Graham's Defensive criteria for HP.
    Sales: 630.00%
    Liabilities: 117.43%
    Debt: 263.63%
    Earnings Stability: 100.00%
    Dividend Record: 100.00%
    Earnings Growth: 493.40%
    Graham Number / Price: 104.86%

    For more information on how to invest using Graham's principles, see "How To Build A Complete Benjamin Graham Portfolio" - http://seekingalpha.co...
    Jun 7 01:22 PM | 1 Like Like |Link to Comment
  • Would Benjamin Graham Like HollyFrontier? [View article]
    Thank you, Rupert.

    Graham recommended 3 different grades of stocks - Defensive (discussed here), Enterprising and NCAV - for investment, and 16 criteria in all for finding them.

    Serenity applies these 16 criteria to 4700 NYSE and NASDAQ stocks using more than 40 data points per individual stock.

    The data used, as well as the final Graham result, is displayed for each stock on Serenity.
    Jun 2 02:34 PM | 1 Like Like |Link to Comment
  • Why This Energy Stock Came In Second For My Portfolio [View article]
    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.

    Phillips 66 (PSX) fails all criteria other than Sales.
    ConocoPhillips (COP) fails all criteria other than Sales and Dividend Record.

    Also, PSX has a Tangible Book Value of only $26.79 (after excluding Goodwill and other Intangibles).
    That brings its actual Graham Number to $62.45.
    May 26 01:29 PM | 1 Like Like |Link to Comment
  • Benjamin Graham's Rules For The Common Stock Component: Oracle [View article]
    In later chapters, Graham gives more specific numbers for each of these Defensive stock criteria, the last two being:

    "6. Current price should not be more than 15 times average earnings.
    7. Current price should not be more than 1-1⁄2 times the book value.
    As a rule of thumb, we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5."

    Graham's recommended price for Defensive stocks can be calculated from criteria #6 and #7 as the square root of (22.5 x EPS x BVPS).
    This price is popularly known as the Graham number.

    ORCL fails the criteria for dividend records and is also selling much above its Graham Number.
    May 25 11:09 PM | 1 Like Like |Link to Comment
  • 5 Outperforming Dividend Stocks Undervalued By The Graham Number [View article]
    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.

    Allstate Corp fails all the criteria other than Sales and Dividend record.
    Associated Banc-Corp also fails all the criteria other than Sales and Dividend record.
    Fulton Financial Corp also fails all the criteria other than Sales and Dividend record.
    Huntington Bancshares Inc also fails all the criteria other than Sales and Dividend record.
    Flushing Financial Corp fails all the criteria other than Earnings stability.
    Apr 2 10:27 PM | 1 Like Like |Link to Comment
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