Methodologies, Value Investing

Graham’s Criteria for the Defensive Investor

Just saw some articles from Stingy Investor ( talking about Graham's stock selection criteria for the defensive investor.

Benjamin Graham's Criteria for the Defensive Investor
P/E Ratio less than 15.
P/Book Ratio less than 1.5.
Book Value over 0.
Current Ratio over 2.
Earnings growth of 33% over 10 years.
Uninterrupted dividends over 20 years.
Some earnings in each of the past 10 years.
Annual revenue of more than $100 Million (1950).
Source: The Intelligent Investor, 4th Revised Edition (pages 184-185).

As current stock screeners only provide use of 5 years of data, the approximation used by the author was:

Screening criteria used to approximate Graham's rules
P/E Ratio less than 15.
P/Book Ratio less than 1.5.
Book Value more than 0.01.
Current Ratio more than 2.
Annual EPS Growth (5 Yr Avg) more than 2.9186%.
5 Year Dividend Growth more than 0%.
5 Year P/E Low more than 0.01.
1 Year Revenue more than $400 Million.

The results published showed that Graham stocks gained about 36.2% annually for the past 5 years, while the S&P 500 made a small loss.

This anecdotal 5-year result is interesting, after reading the magic formula from Joel Greenblatt's book. My personal preference is still to use the all these "magic formulas" as stock screeners; significant due diligence on each stock will still be required before any purchase.



No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

Copyright © 2005 – 2018 All Rights Reserved.

Enter your email address to follow this blog and receive notifications of new posts by email.


Blog Stats

  • 582,552 hits
%d bloggers like this: