Comments on: Benjamin Graham Checklists and Formulas http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/ Fusing Fundamental and Technical Analysis with lashings of Behavioural Finance. Investing in Australia and North America. Thu, 02 Feb 2012 06:57:27 +0000 hourly 1 http://wordpress.org/?v=3.2 By: John http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/comment-page-1/#comment-1906 John Thu, 20 May 2010 04:03:35 +0000 http://www.fusioninvesting.com/?p=2934#comment-1906 You should have included increasing and/or consistent divivends over a 5 year period. Technical Analysis should be imported because it dot not exist in its modern sense at the time of the writing. If certain bearish indicators are set off an investor may be wise to wait. Somtimes TA indicators precede an earnings diasspointment or pricing correction. I like to include some growth stocks with low PE ratios as well, but their histories of earnings are not long enough. I look to Micro Cap Reports for those. You should have included increasing and/or consistent divivends over a 5 year period. Technical Analysis should be imported because it dot not exist in its modern sense at the time of the writing. If certain bearish indicators are set off an investor may be wise to wait. Somtimes TA indicators precede an earnings diasspointment or pricing correction. I like to include some growth stocks with low PE ratios as well, but their histories of earnings are not long enough. I look to Micro Cap Reports for those.

]]> By: Dean Morel http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/comment-page-1/#comment-1094 Dean Morel Thu, 13 Aug 2009 12:28:05 +0000 http://www.fusioninvesting.com/?p=2934#comment-1094 and another from Kelbon, sheesh I'm going to have to order The Intelligent Investor now. The check-list from Chapter 14 of The Intelligent Investor <strong>Stock Selection for the Defensive Investor</strong> <strong>1. Adequate Size of the Enterprise</strong> All our minimum figures must be arbitrary and especially in the matter of size required. Our idea is to exclude small companies which may be subject to more than average vicissitudes especially in the industrial field… <strong>2. A Sufficiently Strong Financial Condition</strong> For industrial companies current assets should be at least twice current liabilities—a so-called two-to-one current ratio. Also, long-term debt should not exceed the net current assets (or "working capital"). For public utilities the debt should not exceed twice the stock equity (at book value). <strong>3. Earnings Stability</strong> Some earnings for the common stock in each of the past ten years. <strong>4. Dividend Record</strong> Uninterrupted payments for at least the past 20 years. <strong>5. Earnings Growth</strong> A minimum increase of at least one-third in per-share earnings in the past ten years using three-year averages at the beginning and end. <strong>6. Moderate Price/Earnings Ratio</strong> Current price should not be more than 15 times average earnings of the past three yeas. <strong>7. Moderate Ratio of Price to Assets.</strong> Current price should not be more than 1 1/2 times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule off thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5 (This figure corresponds to 15 times earnings and 1 1/2 book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.) and another from Kelbon, sheesh I’m going to have to order The Intelligent Investor now.
The check-list from Chapter 14 of The Intelligent Investor

Stock Selection for the Defensive Investor

1. Adequate Size of the Enterprise
All our minimum figures must be arbitrary and especially in the matter of size required. Our idea is to exclude small companies which may be subject to more than average vicissitudes especially in the industrial field…

2. A Sufficiently Strong Financial Condition
For industrial companies current assets should be at least twice current liabilities—a so-called two-to-one current ratio. Also, long-term debt should not exceed the net current assets (or “working capital”). For public utilities the debt should not exceed twice the stock equity (at book value).

3. Earnings Stability
Some earnings for the common stock in each of the past ten years.

4. Dividend Record
Uninterrupted payments for at least the past 20 years.

5. Earnings Growth
A minimum increase of at least one-third in per-share earnings in the past ten years using three-year averages at the beginning and end.

6. Moderate Price/Earnings Ratio
Current price should not be more than 15 times average earnings of the past three yeas.

7. Moderate Ratio of Price to Assets.
Current price should not be more than 1 1/2 times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule off thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5 (This figure corresponds to 15 times earnings and 1 1/2 book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)

]]> By: Dean Morel http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/comment-page-1/#comment-1093 Dean Morel Thu, 13 Aug 2009 12:11:32 +0000 http://www.fusioninvesting.com/?p=2934#comment-1093 Here's a follow-up comment kelbon made on the same TMF thread. Here's a quick "rule of thumb" on the subject of growth stocks, from The Intelligent Investor Most of the writing of security analysts on formal appraisals relates to the valuation of growth stocks. Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations. Our formula is: <strong>Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)</strong> Here’s a follow-up comment kelbon made on the same TMF thread.
Here’s a quick “rule of thumb” on the subject of growth stocks, from The Intelligent Investor

Most of the writing of security analysts on formal appraisals relates to the valuation of growth stocks. Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations. Our formula is:

Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate)

]]> By: Dean Morel http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/comment-page-1/#comment-1092 Dean Morel Thu, 13 Aug 2009 07:30:18 +0000 http://www.fusioninvesting.com/?p=2934#comment-1092 Hi Nic, thanks for the comment. I clearly didn't proof my article or the linked passaged from Gurufocus very well, thanks for catching that. The Equity/Asset ratio or Asset/Equity ratio as I'm more familiar seeing it expressed is total assets/divided by shareholder equity. So the first part, Equity/Asset Ration of .5 or more, implies shareholder equity of at least half of assets. Which means debt must be less than half of assets and equity must be at least equal to debt. So you're totally right, but as I'm more used to debt/equity I change it to <1. Thanks again and sorry for the ramble, I was thinking out loud. Hi Nic, thanks for the comment.
I clearly didn’t proof my article or the linked passaged from Gurufocus very well, thanks for catching that.
The Equity/Asset ratio or Asset/Equity ratio as I’m more familiar seeing it expressed is total assets/divided by shareholder equity. So the first part, Equity/Asset Ration of .5 or more, implies shareholder equity of at least half of assets. Which means debt must be less than half of assets and equity must be at least equal to debt. So you’re totally right, but as I’m more used to debt/equity I change it to <1. Thanks again and sorry for the ramble, I was thinking out loud.

]]> By: Nic http://www.fusioninvesting.com/2009/08/benjamin-graham-checklists-and-formulas/comment-page-1/#comment-1090 Nic Thu, 13 Aug 2009 04:18:46 +0000 http://www.fusioninvesting.com/?p=2934#comment-1090 Good article Dean! Debt/Equity>1 looks odd. "Equity/Asset Ration of .5 or more" implied it should be the other way around: Equity/Debt>1 instead. Good article Dean! Debt/Equity>1 looks odd. “Equity/Asset Ration of .5 or more” implied it should be the other way around: Equity/Debt>1 instead.

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