Ben Graham’s Last Will and Testament
Legend investor Benjamin Graham, teacher of billionaire investor Warren Buffet and author of the great books “Security Analysys” and “The Intelligent investor“, distilled six decades of experience into ten criteria that would help investors to pick value stocks from the market. Here is the magic ten! This 10 points prominently considered as “Ben Grahams Last Will and Testament” by the value investors across the globe.
Here is Ben Grahams Last Will and Testament, the 10 points
1 An earnings-to-price yield of twice the triple-A bond yield. The earnings yield is the reciprocal of the price earnings ratio.
2 A price/earnings ratio down to four-tenths of the highest average P/E ratio the stock reached in the most recent five years. (Average P/E ratio is the average stock price for a year divided by the earnings for that year.)
3 A dividend yield of two-thirds of the triple-A bond yield.
4 A stock price down to two-thirds of tangible book value per share.
5 A stock price down to two-thirds of net current asset value—current assets less total debt.
6 Total debt less than tangible book value.
7 Current ratio (current assets divided by current liabilities) of two or more.
8 Total debt equal or less than twice the net quick liquidation value as defined in No. 5.
9 Earnings growth over the most recent ten years of seven percent compounded—a doubling of earnings in a ten-year period.
10 Stability of growth in earnings—defined as no more than two declines of five percent or more in year-end earnings over the most recent ten years.
That’s it with the Ben Grahams Last Will and Testament. The first five points focusing to the potential reward by pinpointing a low price value stock in relation to key operating results as earnings.
The second five measures the risks by measuring financial soundness and stability of earnings.
Conclusion
Learn further about this 10 points from the Author of the book “The Intelligent Investor”, considering as the Bible of value investors. Here is the 10 great investment strategies of Sir John Templeton for a good read.