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  • Valuable Lessons From Warren Buffett's 2014 Letter To Shareholders [View article]
    Sad but true, six!
    In fact, the misuse goes beyond just quotes.

    How many times have we seen someone recommend the "latest Benjamin Graham stocks" with this formula?

    Intrinsic Value = EPS x (8.5 + 2xGrowth)

    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 now used more often than Graham's actual (and more thorough) methods.

    Article: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.
    Mar 10, 2015. 02:00 PM | Likes Like |Link to Comment
  • Valuable Lessons From Warren Buffett's 2014 Letter To Shareholders [View article]
    Warren Buffett once wrote a lengthy article explaining how Benjamin 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".

    On the subject of being one's own worst enemy, Graham wrote:

    "We shall say quite a bit about the psychology of investors. For indeed, the investor’s chief problem—and even his worst enemy—is likely to be himself."
    Introduction, The Intelligent Investor

    "We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock-market lore."
    Introduction, The Intelligent Investor

    There's good reason why Buffett calls The Intelligent Investor "by far the best book about investing ever written". Graham doesn't miss anything.

    In The Intelligent Investor, Graham recommended various categories of stocks and specified precise qualitative and quantitative rules for each category.

    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.

    Article: High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 8, 2015. 05:51 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of V.F. 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 mentions 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 sometimes mistakenly used today instead of Graham's actual (and more thorough) methods.

    Article 1: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

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

    Another example from 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 criterion. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Other rules mentioned here too - such as dividend record, and PE & PB ratios - are very different from what Graham actually recommended.

    Given below are the actual Graham ratings for VF Corp (VFC), 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%.

    VF Corp - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,456.40%
    Current Assets ÷ [2 x Current Liabilities]: 123.82%
    Net Current Assets ÷ Long Term Debt: 162.23%
    Earnings Stability (100% ⇒ 10 Years): 100.00%
    Dividend Record (100% ⇒ 20 Years): 95.00%
    Earnings Growth (100% ⇒ 30% Growth): 162.82%
    Graham Number ÷ Previous Close: 36.80%

    The Final Graham Assessment for VF Corp is also given below.
    The Quantitative Result (Intrinsic Value ÷ Previous Close) for a stock has to be 100% for true Graham investment.

    VF Corp - Final Graham Assessment
    Defensive Price (Graham Number): $27.41
    Enterprising Price (Serenity Number): $8.56
    NCAV Price: $-0.79
    Qualitative Result: Good / Enterprising
    Intrinsic Value: $8.56
    Previous Close: $74.49
    Quantitative Result: 11.49%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    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.

    Article 2: High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 8, 2015. 04:26 PM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Wynn Resorts Limited [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 mentions 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 sometimes mistakenly used today instead of Graham's actual (and more thorough) methods.

    Article 1: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

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

    Another example from 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 criterion. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Other rules mentioned here too - such as dividend record, and PE & PB ratios - are very different from what Graham actually recommended.

    Given below are the actual Graham ratings for Wynn Resorts Ltd (WYNN), 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%.

    Wynn Resorts Ltd - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 1,086.80%
    Current Assets ÷ [2 x Current Liabilities]: 0.00%
    Net Current Assets ÷ Long Term Debt: 0.00%
    Earnings Stability (100% ⇒ 10 Years): 90.00%
    Dividend Record (100% ⇒ 20 Years): 35.00%
    Earnings Growth (100% ⇒ 30% Growth): 113.91%
    Graham Number ÷ Previous Close: 0.00%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    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.

    Article 2: High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 8, 2015. 04:22 PM | 1 Like Like |Link to Comment
  • ModernGraham Annual Valuation Of Coca-Cola [View article]
    Thank you, jimklawyer!
    Mar 5, 2015. 02:28 PM | Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Coca-Cola [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 mentions 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 sometimes mistakenly used today instead of Graham's actual (and more thorough) methods.

    Article 1: Analysts Continue To Use Wrong Benjamin Graham Formula (http://seekingalpha.co...) discusses the issue in detail.

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

    Another example from 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 criterion. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones.

    Other rules mentioned here too - such as dividend record, and PE & PB ratios - are very different from what Graham actually recommended.

    Given below are the actual Graham ratings for Coca-Cola Co (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 Co - 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: 39.97%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    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.

    Article 2: High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 5, 2015. 07:13 AM | 3 Likes Like |Link to Comment
  • Why Unilever Can Still Be Put In Every Retirement Portfolio, Close To Double-Digit Returns Ahead [View article]
    From Chapter 14 of The Intelligent Investor - Stock Selection for the Defensive Investor:
    "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."

    The maximum Graham price for Defensive quality stocks is derived from the above as:
    The square root of [22.5 x EPS x BVPS]

    This price is known as the Graham Number today.
    Graham was OK with a PE of above 15, if the stock had enough assets to compensate.

    But before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria (#2 has two sub criteria).

    For example, given below are all Graham ratings for Unilever (UL).

    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%.

    Unilever - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 11,045.80%
    Current Assets ÷ [2 x Current Liabilities]: 31.43%
    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): 89.68%
    Graham Number ÷ Previous Close: 38.92%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    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.

    High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 5, 2015. 07:06 AM | Likes Like |Link to Comment
  • Raytheon Company Dividend Stock Analysis [View article]
    Before being checked against the Graham Number, Benjamin Graham required that a stock first meet six other qualitative criteria.

    For example, given below are all Graham ratings for Raytheon Co (RTN).

    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: 62.19%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    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.

    High-Quality Value Investing With Benjamin Graham (http://seekingalpha.co...) has more details.

    Thank you.
    Mar 5, 2015. 06:58 AM | Likes Like |Link to Comment
  • 3 Unloved High Growth Plays To Add To Your Watchlist [View article]
    We often forget that the purpose of an investment framework is to deliver the best results, and not to deliver the largest list of stocks.

    Graham's framework does clear very few stocks, and that's exactly what it's designed to do - be highly selective and deliver the best results.

    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.

    The Graham Number has "six" explicit supporting qualitative criteria which are almost always completely ignored today.

    http://seekingalpha.co... discusses some of these common misconceptions about Value Investing and Graham.
    Mar 3, 2015. 03:18 PM | Likes Like |Link to Comment
  • Did Warren Buffett Move The Goalposts In The Latest Letter? [View article]
    As others have pointed out above, additional information is not a bad thing and not the same as moving the goalposts.

    In any case, this preoccupation over Book Value and Assets in Value Investing is actually quite unwarranted.

    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.

    Buffett once wrote a lengthy article explaining how Graham's principles are timeless, 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 describes Graham's book - The Intelligent Investor - as "by far the best book about investing ever written" (in the preface, which Buffett wrote).

    Graham is rightly considered the father of value investing. But the term "Value" is often misunderstood to refer to only quantity (Assets/Earnings), and not quality. Most of Graham's stock selection rules were actually concerned with the qualitative assessment of a stock.

    http://seekingalpha.co... discusses some of these common misconceptions about Value Investing as taught by Graham, and practiced by Buffett.
    Mar 2, 2015. 04:10 PM | Likes Like |Link to Comment
  • High-Quality Value Investing With Benjamin Graham [View article]
    Investment really is as much of a psychological challenge as a technical one, maybenot. Your username makes for entertaining sentences, btw :)

    The technical challenges of investing are somewhat straightforward to overcome, especially with modern software like Serenity's Graham screeners.

    But Graham addresses the psychological aspect of investing extensively too. So again, it makes sense to just quote him.

    "We shall say quite a bit about the psychology of investors. For indeed, the investor’s chief problem—and even his worst enemy—is likely to be himself."
    Introduction, The Intelligent Investor

    "We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock-market lore."
    Introduction, The Intelligent Investor

    There's good reason why Buffett calls The Intelligent Investor "by far the best book about investing ever written". Graham doesn't miss anything.

    Thank you for your comment!
    Mar 1, 2015. 12:00 PM | 2 Likes Like |Link to Comment
  • High-Quality Value Investing With Benjamin Graham [View article]
    Thank you for your comment, manciata!

    Yes, Graham does mention eliminating stocks with losses, but doesn't specifically mention it as a criteria. So there is room for interpretation.

    But if you think about it, it makes sense too. Buying a stock just for its assets doesn't make good business sense if the company is losing money. It'll just have less in net assets the following year.

    On the other hand, if the company is profitable and still selling below its NCAV, there's a strong case for investing in it.

    This is also where the [value=quality+quantity] perspective comes in. NCAV delivers the quantity (assets), but having a positive EPS also ensures that the stock is of sufficiently good quality.

    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.

    In fact, the Graham Number has "six" explicit supporting qualitative criteria which are almost always completely ignored today. http://seekingalpha.co... has the details.

    Of course, each of us is free to follow our own interpretation.

    But all stocks categorized as NCAV stocks on Serenity's screeners also have a positive EPS (in addition to selling under their NCAV values).
    Mar 1, 2015. 08:23 AM | Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of Seagate Technology [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 mentions 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 sometimes mistakenly used today instead of Graham's actual (and more thorough) methods.

    Article 1: http://seekingalpha.co... discusses the issue in detail.

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

    Another example from 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 criterion. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones. Other rules mentioned here too - such as dividend record, and PE & PB ratios - are very different from what Graham actually recommended.

    Given below are the actual Graham ratings for Seagate Technology PLC (STX), 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%.

    Seagate Technology - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 2,837.60%
    Current Assets ÷ [2 x Current Liabilities]: 120.45%
    Net Current Assets ÷ Long Term Debt: 86.20%
    Earnings Stability (100% ⇒ 10 Years): 50.00%
    Dividend Record (100% ⇒ 20 Years): 25.00%
    Earnings Growth (100% ⇒ 30% Growth): 259.32%
    Graham Number ÷ Previous Close: 53.35%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    Article 2: http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by a similarly precise 17-point Benjamin Graham assessment, with no adjustments other than those for inflation.
    Feb 28, 2015. 04:12 PM | 3 Likes Like |Link to Comment
  • ModernGraham Quarterly Valuation Of JPMorgan Chase [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 mentions 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 sometimes mistakenly used today instead of Graham's actual (and more thorough) methods.

    Article 1: http://seekingalpha.co... discusses the issue in detail.

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

    Another example from 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 criterion. Checking for Market Capitalization instead of Sales will - all else being equal - rate overvalued stocks higher than undervalued ones. Other rules mentioned here too - such as dividend record, and PE & PB ratios - are very different from what Graham actually recommended.

    Given below are the actual Graham ratings for JPMorgan Chase & Co (JPM), 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%.

    JPMorgan Chase & Co - Graham Ratings
    Sales | Size (100% ⇒ $500 Million): 18,213.20%
    Current Assets ÷ [2 x Current Liabilities]: 1.20%
    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): 103.60%
    Graham Number ÷ Previous Close: 21.72%

    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 and quantifiable frame of reference for measuring a stock's margin of safety.

    Article 2: http://seekingalpha.co... shows how one can assess 5000+ NYSE and NASDAQ stocks by a similarly precise 17-point Benjamin Graham assessment, with no adjustments other than those for inflation.
    Feb 28, 2015. 04:10 PM | 3 Likes Like |Link to Comment
  • High-Quality Value Investing With Benjamin Graham [View article]
    Thank you, Capt. Spaulding!

    You're right, of course.
    Discipline is invaluable.

    From Buffett's Preface to The Intelligent Investor:
    "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline."

    Regarding the market's knowledge being superior, the market does usually know more. But it also tends to severely overreact to its knowledge, a lot of which can be irrelevant.

    So unless something vital was missed in the initial assessment of a stock, it should be safe to ignore any intermediate declines.

    "But if the results of his study were reassuring—as they should have been—he was entitled then to disregard the market decline as a temporary vagary of finance, unless he had the funds and the courage to take advantage of it by buying more on the bargain basis offered."
    The Investor and Market Fluctuations, The Intelligent Investor

    Buffett too strongly refutes the efficient market hypothesis in his article "The Superinvestors of Graham-and-Doddsville".

    Thank you for your comment!
    Feb 28, 2015. 11:24 AM | 1 Like Like |Link to Comment
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