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I enjoy reading graham and came across this writing by john mauldin.


http://www.2000wave.com/article.asp?id=mwo051404

Ben Graham is the man who literally wrote the book on value investing. I refer to him quite frequently in my book. Upon hindsight, I should have included the following summary of Graham's definition of value, which Montier noted.

"Shortly before his death in the 1970s, Graham was working on a set of criteria for defining value. This list (supplemented by three of Rea's own requirements) was published by Rea [James Rea] in 1977 (in the Journal of Portfolio Management). In order to qualify as a value opportunity the following criteria must be met:-

1. A trailing earnings yield greater than twice the AAA bond yield.
2. A PE ratio of less than 40% of the peak PE ratio based on five years moving average earnings.
3. A dividend yield at least equal to two thirds of the AAA bond yield.
4. A price of less than two thirds of tangible book value.
5. A price of less than two thirds of net current assets.
6. Total debt less than tangible book value.
7. A current ratio greater than two.
8. Total debt less than (or equal to) twice net current assets.
9. Compound earnings growth of at least seven percent over ten years.
10. Two or fewer annual earnings declines of five percent or more in the last ten years.

"Graham and Rea stressed that criteria 1, 3, 5 and 6 were the most important. Sadly, at present no stocks in the S&P500 manage to simultaneously pass tests 1, 3, 5 and 6. The first five criteria are really concerned with the price you pay for a stock. The last five requirements are all about controlling the risk that the stock is cheap for a reason. Now, admittedly this is an 'extreme' deep value screen. But if it was good enough for Ben Graham, then it is certainly good enough for us."

Here is a link to my site, where i have some graham words as well. I am rereading Security analysis, and will be updating the site soon.

http://www.rbcpa.com/FEATURES/INTELINV.htm

Benjamin Graham
The Intelligent Investor
Notes to Book




Benjamin Graham is known as the grandfather of investing. Warren Buffett, Martin Zweig, Peter Lynch and many others follow his principles heavily.





1. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.



2. In most periods the investor must recognize the existence of a speculative factor in common stock holdings. It is his task to keep this component with minor limits, and to be prepared financially and psychologically for adverse results that may be short or long duration.



3. It took General Electric and the Dow Jones Industrial Average 25 years to recover the ground lost in the 1929 ‑ 1932 debacle.



4. S & P 500 took about 26 years to recover from its low in 1929.



5. When the market appears to be severely overvalued, stop all dollar cost averaging plans.



6. The rate of return should be dependent; rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task. The alert and enterprising investor who exercises maximum intelligence and skill would realize the maximum return.



7. NEW ISSUES ‑ Our one recommendation is that all investors should be wary of new issues ‑ which means, simply, that these should be subject to careful examination and unusually severe tests before they are purchased.



8. One fairly dependable sign of the approaching end of a bull swing is the fact that new common stocks of small and nondescript companies are offered at prices somewhat higher than the current level for many medium sized companies with a long market history.



9. If you buy mutual funds concentrate on the funds with discounts to NAV of 10 to 15%. This is a raw general figure.



10. The role of the advisor is to use his superior training and experience to protect his clients against mistakes and to make sure that they obtain the results to which their money is entitled. It is when the investor demands more than the average return on his money, or when the adviser undertakes to do better for him, that the question arises whether more is being asked or promised than is likely to be delivered.



11. The basic thesis for choosing an adviser is this... "He must have an unusually intimate and favorable knowledge of the person who is going to direct his funds."







12. The intelligent investor will use services such as Value Line and Morningstar for supplying information and offering suggestions. He will not do his buying and selling based solely on these recommendations.



13. Ideally, perhaps, the security analyst should pick three or four companies whose future he thinks he knows best and ultimately concentrate on them.



14. Always take advantage of prices that are ridiculous to any fundamental. Even if it means capital gains tax to pay.



15. "Every competent analyst looks forward to the future rather than backwards to the past. Always keep in mind projection and protection.”



16. The defensive investor should emphasize diversification rather than individual selection.


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