Benjamin Graham, Value Investing

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Benjamin Graham the Father of Value Investing and Warren Buffett's Mentor

Benjamin Graham was the inventor of modern Value Investing. He taught many of the next generation of investors at Columbia University including the current best investor of all time, Warren Buffett. Graham made his first fortune in the "Roaring Twenties" only to lose it again in the Wall Street Crash, but made another fortune during the depression that followed.

Benjamin Graham specified the formula for his success on the eve of his death in 1976 and it was published in Forbes magazine shortly afterward.

Benjamin Graham's Value Investment Rules

Benjamin Graham's Value Investing Rules

Criteria to be met for a stock to be good value (i.e. worth buying)

Value Investing involves comparing the relative values of stocks and shares, using Fundamental Analysis: i.e. mathematical ratios and other calculations based on the data in a company's balance sheet, cash flow account etc. e.g. low P/E or Price Earnings Ratio, high Yield etc.

Benjamin Graham set very strict rules for which stock can really be classes as cheap. Here are the ten basic rules that must apply:

  • Earnings Yield should be more than twice the AAA rated bond yield

  • Price/Earnings (P/E) ratio should be less than 40% of the highest P/E ratio for all stocks over the past five years

  • Dividend Yield should be greater than 66% of AAA rated corporate bond yield

  • Price is less than 66% of tangible book value

  • Price is less than 66% of net current assets value

  • Total Debt is less than 66% of net current assets value

  • Current Assets should be greater than twice current liabilities

  • Debt should be less than twice current assets

  • Compound Earnings Growth should be greater than 7% over ten years

  • Earnings declined more than 5% just twice over ten years
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    Please Leave Some Feedback

    • amieljaven Nov 13, 2011 @ 8:47 pm | delete
      I'm not familiar with Benjamin Graham, so this is interesting. I have learned a lot from this great lens. Two thumbs up!
    • JammerJ Jul 17, 2010 @ 6:45 pm | delete
      Interesting lens on investing. Well done.
    • JaguarJulie Apr 21, 2010 @ 8:06 am | delete
      I was unfamiliar with Benjamin, but if he was indeed Warren's mentor, he must have known his stuff!
    • CastleRoy Jan 11, 2010 @ 6:11 pm | delete
      I would love to get into investing well hope to some day. this is a wonderful Lens
    • bethd821 Dec 31, 2009 @ 6:21 pm | delete
      I wish I understood investing better. Great lens. Benjamin Graham was a master investor!
    • OhMe Dec 31, 2009 @ 2:55 pm | delete
      One of these days I am going to learn more about Investing and Benjamin Graham's Rules looks like a great place to start. Blessed.

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    Benjamin Graham and Warren Buffett 

    How to Think Like Benjamin Graham and Invest Like Warren Buffett

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