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|Subject: Re: Selecting stocks the Ben Graham way||Date: 12/8/2004 12:26 PM|
|Author: StarryNightShade||Number: 34770 of 46905|
The criteria are not mine, but those of Ben Graham. I take no credit or blame.
To answer your specific questions:
1) I'm in the midst of having just moved houses so I can't place my hands on BG's book to check, but I did correct for inflation. I don't know with certainly if the numbers quoted or in the BG book or the inflation adjusted ones. Although they do look like original ones.
6)The only adjustment I made is the one described for bond yields. PE's have risen but they've fallen too. The past 100 years has seen dramatic 30 year market cycles. If we are repeating this type of cycle it's possible we haven't seen the bottom of market PE's yet.
7)It's possible to adjust book value to include things like R&D to reflect a more "knowledge-based" (terrible term BTW) economy. Some form of adjusted book value must have some relevance otherwise it would imply that returns do not depend upon the need for investment. If that's the case why do companies retain any earnings, borrow funds, raise cash from the markets, etc. Consider this, studies that have demonstrated that low book-value portfolios outperform high book-value portfolios are some of the main bits of evidence against efficient markets. So I wouldn't discount book value yet - and, yes, I know the arguments. It may just be that the market has a very hard time valuing knowledge and overvalues those more dependent upon "knowledge" than "bricks and mortar".
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