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  • Go Ugly Early When It Comes To Benjamin Graham's Stocks Trading Below Net Current Asset Value [View article]
    Hello oreo272,

    The last four lines of your comment quote from Serenity's comment. Do you have a question regarding them?

    All 17 rules (8+7+2) are from Graham's book - The Intelligent Investor - and from the following chapters:

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

    The rules, their sources and their application are discussed on Serenity's tutorial as well as on Serenity's article - http://seekingalpha.co....

    Benjamin Graham is rightly considered the father of value investing. But the term "Value" is often misunderstood to refer to only quantity, and not quality. Most of Graham's actual stock selection rules were concerned with the qualitative assessment of a stock (including objective checks for growth).
    Mar 27, 2015. 01:45 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of PulteGroup, 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 a printing 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.

    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 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 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 PulteGroup Inc (PHM), 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%.

    PulteGroup Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 1,164.40%
    Current Assets ÷ [2 x Current Liabilities]: 157.83%
    Net Current Assets ÷ Long Term Debt: 198.83%
    Earnings Stability (100% ⇒ 10 Years): 30.00%
    Dividend Record (100% ⇒ 20 Years): 10.00%
    Earnings Growth (100% ⇒ 30% Growth): 77.19%
    Graham Number ÷ Previous Close: 133.85%

    Not all stocks failing Graham's rules are necessarily bad investments. Graham's rules are just 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.

    But most of what Graham actually taught has either been forgotten today, or is applied inaccurately, often leading to what are referred to as value traps. But such problems are not the result of following Graham, but rather the result of applying Graham's methods incorrectly.

    Thank you.
    Mar 26, 2015. 04:24 PM | 1 Like Like |Link to Comment
  • Warren Buffett And Bruce Greenwald's Best Tips To Find Franchise Value [View article]
    This article, and the Old School Value website, cite the following as the Graham formula they use:

    V = EPS x (8.5 + 2g)
    Or, 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 a printing 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 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 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 Coca-Cola (KO), 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%.

    Coca-Cola - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 9,199.60%
    Current Assets ÷ [2 x Current Liabilities]: 50.95%
    Net Current Assets ÷ Long Term Debt: 3.21%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 95.00%
    Earnings Growth (100% ⇒ 30% Growth): 125.79%
    Graham Number ÷ Previous Close: 42.00%

    Not all stocks failing Graham's rules are necessarily bad investments. Graham's rules are just 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.

    But most of what Graham actually taught has either been forgotten today, or is applied inaccurately, often leading to what is often referred to as value traps. But such problems are not the result of following Graham, but rather the result of applying Graham's methods incorrectly.

    Thank you.
    Mar 26, 2015. 10:15 AM | 3 Likes Like |Link to Comment
  • Go Ugly Early When It Comes To Benjamin Graham's Stocks Trading Below Net Current Asset Value [View article]
    True. The Net Current Asset Value (or NCAV/Net-Net) valuation method was introduced by Benjamin Graham. But Graham also recommended that an NCAV stock have a positive EPS figure to be eligible for investment.

    The EPS requirement also makes sense if you think about it. There's really not much point buying a stock for its current assets (cash equivalents), if the company's losing money.

    But most analyses today only follow the quantitative part of Graham's recommendations (NCAV, Graham Number etc) without the supporting qualitative criteria, thus leading to the misconception that Graham only recommended cheap stocks.

    Graham actually recommended Defensive (8 rules) and Enterprising stocks (7 rules) alongside NCAV stocks (2 rules); and both were allowed higher Quantitative valuations and required greater Qualitative checks.

    It's a capital mistake to invest based on assets alone, often leading to what another commenter above referred to as a value trap. But such problems are not the result of following Graham, but rather the result of following Graham incompletely.

    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 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 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 objective analysis and profitable investment.

    Thank you.
    Mar 25, 2015. 03:51 PM | 6 Likes Like |Link to Comment
  • Are You Making These 5 Common Investing Mistakes [View article]
    The Graham references and scans in Serenity's articles are all publicly available. Interested readers are encouraged to look them up and make up their own minds.

    Thank you.
    Mar 24, 2015. 12:42 PM | 1 Like Like |Link to Comment
  • Fosun International, China's Largest Holding Company, Pivots Abroad [View article]
    If Guo cites Warren Buffett as his inspiration, Buffett cites Benjamin Graham as his.

    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 once wrote a lengthy article explaining how Graham's principles are everlasting, and how Graham's record of creating exceptional investors (such as Buffett himself) is unquestionable. The article is called "The Superinvestors of Graham-and-Doddsville".

    Buffett also describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in its preface, which Buffett wrote).
    Mar 24, 2015. 12:26 PM | Likes Like |Link to Comment
  • Are You Making These 5 Common Investing Mistakes [View article]
    > Gravity (NASDAQ:GRVY) was and still is a net net.

    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.

    The Net Current Asset Value (or NCAV/Net-Net) valuation method was introduced by Graham. But Graham also recommended that an NCAV stock have a positive EPS figure to be eligible for investment.

    The EPS requirement also makes sense if you think about it. There's really not much point buying a stock for its assets, if the company's losing money.

    GRVY has had a negative EPS for 7 out of the last 10 years. GRVY is thus not given a Graham grade on Serenity's database (despite selling under its NCAV).

    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".

    But most of what Graham actually taught has either been forgotten today, or is applied inaccurately.

    Another great example is the following formula:
    Intrinsic Value = EPS x (8.5 + 2xGrowth)

    The Old School Value website cites this formula as the other Graham valuation method it uses.

    Benjamin Graham actually gave several warnings about this formula and only mentioned it briefly to demonstrate why growth-based valuations are unreliable. But due to a printing 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.

    Thank you.
    Mar 24, 2015. 12:17 PM | 1 Like Like |Link to Comment
  • The Buffett Indicator Suggests It's Time For A Market Correction [View article]
    Incidentally, the CAPE ratio is based on the writings of Benjamin Graham in his legendary 1934 book “Security Analysis.”

    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 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".

    Please note that Graham advised keeping 25% of one's portfolio in stocks (the rest being in bonds), even in the highest of markets.
    Mar 24, 2015. 11:40 AM | Likes Like |Link to Comment
  • A Review Of Sardar Biglari's Long-Term Record Of Value Creation [View article]
    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 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".

    Given below are the actual Graham ratings for Biglari Holdings Inc (BH), 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%.

    Biglari Holdings Inc - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 158.76%
    Current Assets ÷ [2 x Current Liabilities]: 82.43%
    Net Current Assets ÷ Long Term Debt: 23.26%
    Earnings Stability (100% ⇒ 10 Years): 60.00%
    Dividend Record (100% ⇒ 20 Years): 0.00%
    Earnings Growth (100% ⇒ 30% Growth): 201.04%
    Graham Number ÷ Previous Close: 127.45%

    Please note that not all stocks failing Graham's rules are necessarily bad investments. Graham's rules are just 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 completely, Graham's rules give a clear quantifiable frame of reference for measuring a stock's margin of safety.
    Mar 24, 2015. 11:29 AM | Likes Like |Link to Comment
  • Berkshire Hathaway: A Gift That Keeps On Giving [View article]
    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 finding them.
    For advanced investors, Graham described various "special situations".

    Interestingly, Berkshire doesn't clear any complete set of Graham's rules for Defensive (8 rules), Enterprising (7 rules) or NCAV (2 rules) investment.

    This does not mean Berkshire is a bad investment.
    Graham's rules are just extremely selective. Berkshire may fall in the "special situations" category.

    But here is a quote by Buffett from the 2013 letter to shareholders (dated February 28, 2014):
    "My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

    Buffett himself recommends an S&P500 Index fund to the trustees of his estate once he's gone, a contemporary application of Graham's first recommended strategy for investors.

    Thus, in the absence of a clear case for value in Berkshire, an S&P500 Index fund is definitely a viable alternative.
    Mar 24, 2015. 10:49 AM | 1 Like Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    Hello monsieurmarket,

    Warren Buffett once said:
    "In the business world, the rearview mirror is always clearer than the windshield."

    The S&P500 may have tripled since the low point.
    But how many people would have invested their entire portfolio at that exact point in an S&P500 Index fund?

    It's easy to cherry pick possible outcomes. We have to look at what average returns people have actually achieved with various strategies.

    "I have been the most read, yet least followed analyst on Wall Street."
    -Benjamin Graham

    People have had their reasons for not following Graham ever since he started writing. In fact, most people dislike Graham's methods for what should be their greatest selling point - their extreme selectivity.

    As mentioned, Graham's rules continue to be very selective - but applicable - even in today's market. The only adjustment Serenity's software makes to them, is for inflation.

    Irving Kahn, one of Graham's earliest students, passed away a few days ago. To quote a line from the Bloomberg article on Kahn's passing:
    "In 2012, at 106, Kahn told Bloomberg Businessweek that Graham’s principles, though relevant as ever, were increasingly being drowned out by noise."

    But please follow your instincts. Graham's methods appeal to some people, and don't to others. In the end, its important that we consistently follow a strategy that we're comfortable with and believe in.

    Thank you.
    Mar 24, 2015. 10:26 AM | Likes Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    Thank you, Mike Bartlett (for your comment below) and jimpetroskey.

    To reiterate from previous comments:

    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&P 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.

    Serenity's software thus focuses on Defensive, Enterprising and NCAV stocks. These can be reliably detected by today's data-mining software, and offer a great avenue for objective analysis and profitable investment.

    Hence the statement "no intrinsic value can currently be assigned to CBI based on Graham's rules for Defensive, Enterprising or NCAV investment".

    CBI may fall in the "special situations" category, which Serenity Stocks does not deal with.

    In this instance, Graham's rules only provide a quantifiable measure of the stock's margin of safety.
    Mar 23, 2015. 09:50 AM | Likes Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    > but what fun would that be?

    "If investing is entertaining, if you're having fun, you're probably not making any money. Good investing is boring."
    - George Soros

    "Investment is most intelligent when it is most businesslike."
    - Benjamin Graham

    Most businesses are based on the predictability of human behavior, Jonny O'.

    "while the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty"
    - William Winwood Reade

    Also, as noted in the first comment, Graham describes various "special situations" for advanced investors that require more experience and talent than the average investor has. But these too would need to meet Graham's two central definitions:

    1. "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
    The Intelligent Investor, Benjamin Graham

    2. "Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto - Margin of Safety."
    The Intelligent Investor, Benjamin Graham

    A successful investment career is not the placing of a few brilliant bets, but rather the sustaining of good performance over prolonged periods.
    Mar 22, 2015. 06:22 PM | Likes Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    Thanks, Mike Bartlett.

    The final results of the 17-point Benjamin Graham stock assessment for Chicago Bridge & Iron Company (CBI) are given below.

    Defensive Price (Graham Number): $40.46
    Enterprising Price (Serenity Number): $0.00
    NCAV Price: -$34.00
    Qualitative Result: Bargain / NCAV
    Intrinsic Value: $0.00
    Previous Close: $45.29
    Quantitative Result: 0.00%

    As mentioned in the previous comment, no intrinsic value can currently be assigned to CBI based on Graham's rules for Defensive, Enterprising or NCAV investment.

    But that does not necessarily mean CBI is a bad investment. Graham's rules are just extremely selective.

    There are numerous other stocks that clear Graham's rules even today, as can be seen on Serenity's Graham screeners. The rules are still applicable, just not to CBI right now.
    Mar 21, 2015. 09:23 PM | 2 Likes Like |Link to Comment
  • Buffett Financial Analysis Template: Chicago Bridge And Iron Company [View article]
    Thank you for your comment, Mike Bartlett.

    The last edition of The Intelligent Investor, Buffett's preface and Buffett's article were all written half a century after the great depression.

    CBI doesn't clear any complete set of Graham's rules for Defensive (8 rules), Enterprising (7 rules) or NCAV investment (2 rules). So no Intrinsic value can be assigned as of now.

    Again, as mentioned in the previous comment, this does not mean CBI is necessarily a bad investment. Graham's rules are just extremely selective.

    There are also plenty of stocks that clear Graham's rules even today, as can be seen on Serenity's Graham screeners.

    The article mentioned in Serenity's previous comment examines many of these myths and misconceptions about Graham today, and explains why Graham is still as integral to Finance today as Einstein is to Physics.

    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."

    Warren Buffett concluded "The Superinvestors of Graham-and-Doddsville" 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."

    Thanks again.
    Mar 21, 2015. 04:00 PM | Likes Like |Link to Comment
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