The Motley Fool Discussion Boards

Previous Page  
Investment Analysis Clubs / Foolish Collective 

URL:
http://boards.fool.com/somecommentsonthecategories1anadequate21720203.aspx


Subject: Re: Selecting stocks the Ben Graham way  Date: 12/8/2004 10:35 AM  
Author: PaulEngr  Number: 34767 of 46872  
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. Priceearnings 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 1520, whereas it is 2325 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 pricebook 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 allinall, a decent list of criteria if you are into ratio analysis. 

Copyright 19962015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us 