Benjamin Graham

Benjamin Graham

Known as the father of value investment, the British-born American investor Benjamin Graham laid the foundation for this type of investing in his book The Intelligent Investor. Graham also taught at Columbia Business School and UCLA’s Anderson School of Management, with several of his students going on to become highly successful investors, including Warren Buffett. His other important work, Security Analysis, was co-authored with David Dodd.

Summary

Graham focuses on finding companies with stock that is undervalued against its intrinsic value. He calculates intrinsic value by looking at a company’s assets, earnings, Dividends and financial strength, and believes that this is crucial to avoidance of the bandwagon approach to investment.

 

Graham sees great potential for higher returns through investment in undervalued companies, which is essentially betting early against the market, as the market will discover or rediscover these companies. The safety element of this approach lies in the fact that the stocks are usually quite cheap, thus minimising the loss should a company get into difficulty. He also emphasises that patience is needed and technology companies should be avoided.

Success Formula Intelligent Investor

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly
  2. Current Ratio latest filing is >=1.5
  3. Long-term debt to working-capital ratio latest FQ is =< 110%
  4. EPS for each of the last 5 FY is > 0
  5. EPS for the last 12 months is >0  
  6. Dividend latest FY is > 0  
  7. EPS latest FY is > EPS 5 years ago
  8. Take the top 50 stocks with the lowest P/B ratio. 

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

Success Formula Defensive Non-Utility

  1. Utility companies are excluded
  2. MktCapM  is >= US$ 300 million (basis year 2000) adjusted yearly
  3. Sales last 12 months is >= $400 million
  4. Current Ratio  latest FQ  is >= 2.0
  5. Long-term debt to Working Capital ratio for latest FQ  is < 100%
  6. EPS  for each of the last 7 FY  is > 0
  7. EPS  for last 12 months is >0
  8. 3-year average  EPS 10 years ago increased by at least 33%
  9. Dividend  paid for each of the last 7 FY  is > 0
  10. Price 1 day ago <= 3-year average EPS  * 15
  11. (Price 1 day ago / 3-year average EPS)  * P/B ratio <=22.5

 

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

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