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Value Investing Benjamin Graham style - Boost your Roth IRA or Retirement Savings Account By Being an Intelligent Investor
Where long term value investing is concerned, Benjamin Graham was the original Intelligent Investor. Graham, (1894-1976) contributed enormously to the subjects of Value Investing and Security Analysis. Whether you are performing your own portfolio management, looking for a timely company report or just need ideas on buying stocks to boost your Roth IRA or 401k retirement savings accounts ahead of Wall Street, The Graham Investor is the Value Investing site for you. We have stock quotes and stock lists (including small cap and tech stocks) with specific information that you won't find in Investors Business Daily or Barron's.
We use a computerized scan to quickly sift through the
fundamentals of thousands of stocks to find those which are in some way
undervalued or ignored by Wall Street and the investing public for no good reason in spite of stellar results year after year.
The Graham Investor develops, tests and offers methodologies to scan for stocks with a "Ben Graham" bent. Whether or not you are ready to buy stocks or invest, please feel free to browse around the site:
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Benjamin Graham always tried to buy stocks that were trading at a
discount to their Net Current Asset Value. In other words he buy stocks that were undervalued and hold them until they became fully valued.
"The
determining trait of the enterprising investor is his willingness to
devote time and care to the selection of securities that are both sound
and more attractive than the average. Over many decades, an
enterprising investor of this sort could expect a worthwhile reward for
his extra skill and effort in the form of a better average return than
that realized by the passive investor." Ben Graham in "The Intelligent Investor", 1949.
One of Graham's best-known disciples, Warren Buffett, certainly could
be said to have followed the above advice to the letter. Buffett,
through his investment vehicle Berkshire Hathaway, has achieved
compounded annual gains of 22.2 percent over the last 39 years (as at
2004). That is a truly remarkable record. Many people may think that
22.2 percent is nothing compared with some of the websites and
newsletters nowadays offering 70%, 100%, even 200% or more annual
gains. But try doing that year-after-year! If anything can be said, it
is that the hype merchants always fall by the wayside, but Buffett
still reigns supreme as the greatest investor of recent times.
But what was it that made Graham's ideas stand out? Not the mere notion
of buying low, and selling high. More the notion of buying cheap assets and selling expensive assets, or looking for large gaps between a stock's worth and its price -- Graham's so-called MARGIN OF SAFETY.
This approach used to take a lot of time -- active
investment. It could not be done passively. Until now.
We are a continually adding content and new features (including new, improved stock
screening) so please be sure to check back regularly for updates!
Intrinsic Value
http://research.stlouisfed.org/fred2/data/AAA.txt
http://en.wikipedia.org/wiki/Benjamin_Graham_formula
Interestingly an article posted by the Motley Fool has a different interpretation:
http://www.fool.com/portfolios/rulemaker/2001/rulemaker011031.htm
"4.4
This was Graham's benchmark for a required rate of return to invest, period. He surmised that at a minimum, an investor needed to be compensated for the effects of inflation and a small risk premium above that. You might be tempted to "play around" with the 4.4, but I keep it constant."
Value Investing
I like your blog because it is centered around Graham's principles of investing. I am blogging my stock market journey: http://www.ourstockmarketjourney.blogspot.com/ and I hope to continue implement the principles of Graham, Buffett, and other successful investors.
Thank you and keep up the good work!
Be well.
Finding Undervalued Stocks 3 - Using Intrinsic Value
I was glad to find your site and articles. This was after I had already read "The Intelligent Investor" 1973 Hardcover edition by Graham (TII), and "Value Investing for Dummies" 2002 edition by Sander and Haley (VIFD).
Now, please bear with me while I build up to my question. What I couldn't reconcile between the two books was the intrinsic value formula. In "TII" on page 158 given as:
Value = Current (Normal) Earnings x (8.5 plus twice the expected annual growth rate),
and there is a footnote that qualifies the equation as not giving the "true value" of a growth stock, but only approximates the results of more elaborate calculations.
Whereas in "VIFD" on page 37 and 210 a similar formula is presented (attributed to Graham):
Intrinsic value = Earnings x [(2 x growth rate) + 8.5] x [4.4 / bond yield]
No attempt was made to explain the 4.4 factor.
Now, when reading the article on your site "Finding Undervalued Stocks 3 - Using Intrinsic Value"
the same formula is found and the 4.4 factor is explained as follows:
"Graham's formula takes no account of prevailing interest rates; at the time he last updated the chapter, around 1971, the yield on AAA Corporate Bonds
was around 4.4%. We can adjust the formula by normalizing it for current bond yields by multiplying by a factor of 4.40/{AAA Corporate Bond Yield}."
This is all well and good in principle, normalizing to current interest rate conditions. It is not clear who came up with the correction factor as "VIFD" doesn't credit your site, and there is no by line in your article. What matters is that the 4.4% rate may not be correct, as I will shortly explain, and it would be good for the original author to consider the following:
On page 48 of "TII" it states that "In early 1972 those of highest quality yielded 7.19% for a 25-year maturity, as reflected in the published yield of Moody's Aaa corporate bond index."
This clearly contradicts the above quote from your site's article. It would seem that the 4.4 factor needs to be revised to 7.2, in which case all previously calculated intrinsic values would increase.
I would sincerely appreciate any comments that could be made in regards to this difference. Thank you.