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  • The Ghost Of Benjamin Graham Takes Revenge [View article]
    Very true.
    As Warren E. Buffett said in the Preface to Graham’s seminal book, The Intelligent Investor:

    “The sillier the market’s behavior, the greater the opportunity for the business-like investor. Follow Graham and you will profit from folly rather than participate in it.”

    Graham recommended 3 different types of stocks for investment - Defensive, Enterprising and NCAV - and 16 criteria for finding them. gives step-by-step instructions on how to build a complete Benjamin Graham portfolio.
    Feb 9 10:21 AM | 1 Like Like |Link to Comment
  • Kellogg Company Dividend Stock Analysis [View article]
    Benjamin Graham actually recommended 3 different types of stocks for investment - Defensive, Enterprising and NCAV - and 16 criteria for finding them.

    Given below are each of the individual ratings for Graham's Defensive criteria for Kellogg Co (K):

    Sales: 2,840.00%
    Assets / Liabilities: 37.36%
    Assets / Debt: 0.00%
    Earnings Stability: 100.00%
    Dividend Record: 100.00%
    Earnings Growth: 75.61%
    [a rating of 100% or more indicates that the stock clears that criteria]

    The final Graham result for Kellogg Co is:

    Defensive Price (Graham Number): $0.00
    Enterprising Price: -$16.58
    NCAV Price: -$25.98
    Graham Grade: Ungraded
    Graham Price: $0.00
    Current Price: $60.25
    Graham Result: Overvalued

    To learn more, see "How To Build A Complete Benjamin Graham Portfolio" -
    Jan 7 11:15 AM | 1 Like Like |Link to Comment
  • Chicago Rivet & Machine: Graham And Buffett Would Have Loved This Boring Value Stock [View article]
    Well said, Robert Allan Schwartz!

    Here's what Benjamin Graham himself warned about this formula, after demonstrating that such predictive formulas don't stand up well to backtesting.

    "Warning: This material is supplied for illustrative purposes only, and because of the inescapable necessity in security analysis to project the future growth rate for most companies studied. Let the reader not be misled into thinking that such projections have any high degree of reliability or, conversely, that future prices can be counted on to behave accordingly as the prophecies are realized, surpassed, or disappointed."

    Scans of the footnote (which is missing from new editions of The Intelligent Investor) and the above warning about this formula can be seen on
    Dec 10 03:43 PM | 1 Like Like |Link to Comment
  • International Business Machines Corp. Dividend Stock Analysis [View article]
    Given below is one of Benjamin Graham's references to IBM's high evaluations from the 1973 edition of his book "The Intelligent Investor":

    "(new, low-quality stocks) quickly find buyers; their prices are often bid up enthusiastically right after issuance to levels in relation to assets and earnings that would put IBM, Xerox, and Polaroid to shame. Wall Street takes this madness in its stride, with no overt efforts by anyone to call a halt before the inevitable collapse in prices."

    IBM currently has a reported book value of $17.22 but a Tangible Book Value of only (negative) -$12.69. Thus IBM is does not meet any of Graham's investment criteria and is ungraded on Serenity.

    Also given below is the percentage rating for IBM by each of Graham's Defensive criteria.
    Sales: 20,902.00%
    Assets / Liabilities: 56.66%
    Assets / Debt: 24.11%
    Earnings Stability: 100.00%
    Dividend Record: 100.00%
    Earnings Growth: 229.48%

    Oct 21 11:06 PM | 1 Like Like |Link to Comment
  • 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
  • Analysts Continue To Use Wrong Benjamin Graham Formula [View article]
    Thank you very much, ArtfulDodger!

    Replying to your observation about Buffett and Graham will require including a few quotes that are lengthy, but insightful.

    Buffett himself says he's 85% Graham and 15% Phil Fisher.
    In his 1984 speech "The Superinvestors of Graham-and-Doddsville", he says:

    "In this group of successful investors that I want to consider, there has been a common intellectual patriarch, Ben Graham.... They have gone to different places and bought and sold different stocks and companies ... I should add that in the records we’ve looked at so far, through- out this whole period there was practically no duplication in these portfolios."

    Also, in the "Legacy of Benjamin Graham" video released by the Heilbrunn Center, Buffett explains that Graham was focussed on refining a method that ordinary investors - without specialized knowledge or access - could apply to achieve the same results as himself.

    Regarding the possibility that Buffett may tout Graham without following him, 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."

    The difference between Graham and Buffett is simply that of principle and application.

    All of Graham's students follow the same principles, they just apply them in their own way. Buffett is simply the most visible of them because he's the wealthiest.

    But large portfolios are simply not a priority to some people.
    Graham himself said in 1976:

    "About six years later, we decided to liquidate Graham-Newman Corporation-to end it primarily because the succession of management had not been satisfactorily established. We felt we had nothing special to look forward to that interested us. We could have built up an enormous business had we wanted to, but we limited ourselves to a maximum of $15 million of capital-only a drop in the bucket these days. The question of whether we could earn the maximum percentage per year was what interested us. It was not the question of total sums, but annual rates of return that we were able to accomplish."
    Oct 6 01:32 AM | 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
    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