Benjamin Graham, Value Investing
Benjamin Graham the Father of Value Investing and Warren Buffett's Mentor
Benjamin Graham was the inventor of modern Value Investing. He taught many of the next generation of investors at Columbia University including the current best investor of all time, Warren Buffett. Graham made his first fortune in the "Roaring Twenties" only to lose it again in the Wall Street Crash, but made another fortune during the depression that followed.
Benjamin Graham specified the formula for his success on the eve of his death in 1976 and it was published in Forbes magazine shortly afterward.
Benjamin Graham's Value Investment Rules
Benjamin Graham's Value Investing Rules
Criteria to be met for a stock to be good value (i.e. worth buying)
Value Investing involves comparing the relative values of stocks and shares, using Fundamental Analysis: i.e. mathematical ratios and other calculations based on the data in a company's balance sheet, cash flow account etc. e.g. low P/E or Price Earnings Ratio, high Yield etc.
Benjamin Graham set very strict rules for which stock can really be classes as cheap. Here are the ten basic rules that must apply:Earnings Yield should be more than twice the AAA rated bond yieldPrice/Earnings (P/E) ratio should be less than 40% of the highest P/E ratio for all stocks over the past five yearsDividend Yield should be greater than 66% of AAA rated corporate bond yieldPrice is less than 66% of tangible book valuePrice is less than 66% of net current assets valueTotal Debt is less than 66% of net current assets valueCurrent Assets should be greater than twice current liabilitiesDebt should be less than twice current assetsCompound Earnings Growth should be greater than 7% over ten yearsEarnings declined more than 5% just twice over ten years