The Motley Fool Discussion Boards

Previous Page

Investment Analysis Clubs / Foolish Collective

URL:  http://boards.fool.com/some-comments-on-the-categories-1-an-adequate-21720203.aspx

Subject:  Re: Selecting stocks the Ben Graham way Date:  12/8/2004  10:35 AM
Author:  PaulEngr Number:  34767 of 46814

Some comments on the categories:


1. An Adequate Size
For Industrials - more than $500 million in sales
For Utilities - more than $250 million in assets


That seems a trifle small these days. Did you apply an inflation factor to scale them to current dollars?


6. Good Value in terms of earnings yield - the current price is less 15 times the AVERAGE EPS for the LAST THREE YEARS (i.e. Price-earnings or PE ratio < 15). There is a potential modification to this as in one corner of his book Ben Graham inverts the PE to produce the earnings yield in percentage and compares it to the long term US Bond yields. So to allow some leeway here I relaxed this criteria so that the average earnings yield would be less than the average long term bond yield, which results in a modified criterion of 17 instead of 15.


Again...depends on when you grabbed Graham's books. Did you account for the gradual rise of P/E over time? When he wrote these criteria, the average P/E may have been only 15-20, whereas it is 23-25 today (over the long term...not talking about the short term P/E effect where it is closer to 28).


7. Good Value in terms of book value - the current price is less than 1.5 times the current tangible book value (i.e. equity less goodwill and other intangibles). (i.e. the price-book or PB ratio < 1.5). This criterion can be modified if the PE ratio is less than 15 (i.e. the PB can exceed 1.5 if the product of the PE X PB is less than 22.5, which is 15 X 1.5).


I know this is opening up a can of worms, but I'll do it anyway. Does book value still have much relevancy today? There are numerous arguments to the contrary.


Still all-in-all, a decent list of criteria if you are into ratio analysis.

Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us