By
admin on October 17th, 2008
Benjamin Graham is known as the father of value investing. His screener has been used by many investor, mostly with slight modification. His student Warren Buffet even became the second richest man on earth. In his book, “Security analysis”, he stated that “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Graham’s screener are:
1. PE of the stock has to be less than the inverse of the yield on AAA Corporate Bonds.
2. PE of the stock has to less than 40% of the average PE over the last 5 years.
3. Dividend Yield > Two-thirds of the AAA Corporate Bond Yield.
4. Price < Two-thirds of Book Value.
5. Price < Two-thirds of Net Current Assets.
6. Debt-Equity Ratio (Book Value) has to be less than one.
7. Current Assets > Twice Current Liabilities.
8. Debt < Twice Net Current Assets.
9. Historical Growth in EPS (over last 10 years) > 7%.
10. No more than two years of negative earnings over the previous ten years.
From the above screener, I conclude that you must choose stocks, which have low price /cheap (screener 1, 2, 3, 4, 5), represents healthy company (6, 7, 8), have growth (9), and have good earning (10). So by looking at those conclusion you can make your own screener.
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By
admin on October 11th, 2008
Value investing is a popular stock-picking method. Benjamin Graham and David Dodd, finance professors at Columbia University, laid out what many consider to be the framework for value investing. The concept is actually very simple: find companies trading below their inherent worth. Warren Buffet is the second riches man on earth by this article made, uses this strategy.
How?
Value investing uses screener to choose stock. The basic of the screener is:
- Low price, can be seen through it’s Price Earning (P/E) Ratio and Price Book Value (PBV)
- Good growth, through it’s Earning growth.
- Safety, no more debt than equity, and current asset should be two times current liabilities.
- Income, the stock should give us sufficient dividend yield, at least two-thirds of the long-term AAA bond yield.
How’s the performance?
According analysis done by many people, stock with low P/E usually beat other stock in return. But you must remember that not all low P/E is a good stock, maybe people won’t buy low P/E stock because the company has poor earning. The second riches person uses this strategy, so there is proof of the goodness Value investing.
For who?
Value investing is long term horizon, more than 1 year. So if you’re patient, then maybe this is your stock pick style.
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